NISM Series VII (SORM) flashcards
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33 cards. Read the term and the definition here. The deck at the top of this page is optional.
- T+1 settlement
- Trade date plus one business day settlement cycle used for Indian equities; pay-in and pay-out occur on the next working day after trade execution.
- Novation
- Process by which a clearing corporation becomes the legal counterparty to every trade, substituting its credit for the original counterparties' credit risk.
- Settlement guarantee fund
- A pooled fund maintained by the clearing corporation from member contributions and its own capital to cover losses if a defaulting member's margins are exhausted.
- Initial margin
- Upfront collateral collected before trade execution, calculated using VaR models at a 99% confidence level with a one-day horizon and a minimum floor.
- Mark-to-market margin
- Daily margin collected to cover the notional loss on open positions when the market moves against the member; collected before the next trading session.
- Peak margin rule
- SEBI rule requiring brokers to collect full upfront margin from clients based on peak intraday position; shortfall attracts a daily penalty on the broker.
- Delivery versus payment
- A settlement mechanism where the securities leg and funds leg are exchanged simultaneously; India uses DvP mode 1 (gross, simultaneous) for equities.
- Short delivery
- Failure of the seller to deliver securities on settlement; the clearing corporation conducts an auction and compensates the buyer at auction or close-out price.
- Auction settlement
- Process where the clearing corporation buys the short-delivered securities in the open market at the buyer's risk and cost to complete the failed delivery.
- Value at Risk
- A statistical estimate of the maximum loss on a portfolio over a given horizon at a given confidence level, e.g., 99% one-day VaR.
- Parametric VaR formula
- VaR = portfolio value × z-score × volatility × square root of holding period; z is about 2.33 for a 99% one-tailed confidence level.
- Circuit breaker
- An exchange mechanism that halts trading when an index or stock moves beyond a preset threshold, such as 10%, 15%, or 20% for index-level breaks.
- Price band
- A stock-level limit on how much the price may move from the previous close in a day; typically 2%, 5%, 10%, or 20% depending on liquidity.
- Client segregation
- Requirement that client funds and securities be held separately from broker assets; unpaid client securities must be returned within one working day of pay-out.
- Credit risk
- The risk that a counterparty fails to meet its settlement or margin obligation, creating a loss for the clearing member or clearing corporation.
- Liquidity risk
- The risk that an entity cannot fund its settlement obligations on time despite being solvent, forcing distress sales or default.
- Operational risk
- The risk of loss from failed internal processes, people, systems, or external events; controlled by maker-checker, reconciliation, and business continuity plans.
- Maker-checker control
- A dual-authorization control where one person prepares a transaction and a different person approves it before release, reducing fraud and error risk.
- Nostro reconciliation
- Daily matching of the firm's internal ledger against bank or depository statements to detect unreconciled differences, errors, and unauthorized movements.
- Business continuity plan
- Documented procedures and backup systems enabling an intermediary to resume critical operations within a defined recovery time after a disruption.
- Corporate action adjustment
- Clearing corporation's recalculation of open positions and margin after bonus issues, splits, or dividends, using the ex-date and record date.
- Ex-date
- The date from which a security trades without entitlement to a declared corporate action; buyers on or after this date do not receive the benefit.
- Record date
- The date fixed by the issuer to determine which shareholders are entitled to a dividend, bonus, or rights issue.
- Pay-in and pay-out
- Pay-in is the delivery of funds and securities by members to the clearing corporation; pay-out is the distribution to receiving members on settlement day.
- Clearing member
- A member of the clearing corporation who clears and settles trades, posts margins, and is liable to the CCP for settlement obligations.
- Trading member
- An exchange member who executes client orders; unless also a clearing member, it routes trades to a clearing member for settlement.
- Default waterfall
- The ordered sequence of resources used to cover a member default: defaulter's margins, default fund contribution, clearing corporation capital, and surviving members' contributions.
- Core SGF
- A separate, ring-fenced settlement guarantee fund maintained by the clearing corporation under SEBI norms, in addition to member-contributed SGF.
- PAN requirement
- Permanent Account Number is mandatory for all exchange trades; brokers must verify and record PAN for each client and each transaction.
- Suspicious transaction report
- A report filed with FIU-IND by an intermediary when a transaction appears linked to money laundering or terrorist financing.
- Re-KYC
- Periodic re-verification of a client's identity and address based on risk category, required under SEBI and PMLA AML norms.
- Close-out price
- The price at which the clearing corporation closes a failed delivery when auction fails, typically the highest price from the previous trading day to the auction day.
- Margin shortfall penalty
- A daily penalty charged on a broker for failing to collect upfront margin from clients, calculated as a percentage of the shortfall amount.