- This topic has 373 replies, 370 voices, and was last updated 2 years, 7 months ago by
.
-
Posts
-
Stock exchange protects us from counter party risk, that is the stock exchange ensures that seller of shares get the money and buyer of the shares get the share certificates. If the buyer defaults to pay the money, then the exchange will pay the money (from the caution deposit of the broker). If the seller defaults in giving the shares, then exchange will purchase the shares on behalf of seller and gives it to the buyer and penalizes the seller.
The NSE has introduced a system called as the Settlement Guarantee Mechanism. The trade settlement is carried out by a separate legal agency.This is a method of ensuring the seller gets the money settlement and the buyer gets the share delivery.The stock broker is essential in this deal to ensure his client is responsible for the transaction . The exchange settles from the caution deposit of the broker there by protecting the investor and also ensuring a smooth transaction .
If I am a buyer of shares then through the broker the exchanges ensures the buying process, In case of any issues the exchange will compensate me with the caution depository of the broker. The same holds true for the sellers too.
<b style=”color: #222222; font-family: arial, sans-serif;”>Counterparty risk</b><span style=”color: #222222; font-family: arial, sans-serif;”> is the </span><b style=”color: #222222; font-family: arial, sans-serif;”>risk</b><span style=”color: #222222; font-family: arial, sans-serif;”> to each party of a contract that the </span><b style=”color: #222222; font-family: arial, sans-serif;”>counterparty</b><span style=”color: #222222; font-family: arial, sans-serif;”> will not live up to its contractual obligations.</span>
exchange settles the amount to trader by taken it from broker`s caution deposit
- You must be logged in to reply to this topic.
