NISM Series VII (SORM) key terms

A settlement cycle in which a trade executed on day T is settled on the second business day after the trade date. India's equity market moved from T+2 to T+1 in 2023, while debt and other segments follow their own cycles.

An entity that acts as central counterparty between buyers and sellers, novating trades, computing obligations, and guaranteeing settlement. In India, clearing corporations such as those of NSE, BSE, and MSEI are regulated by SEBI.

The process by which a clearing corporation interposes itself between the original buyer and seller, becoming the buyer to every seller and the seller to every buyer. This substitutes counterparty credit risk with the clearing corporation's own creditworthiness.

A trading member admitted to a clearing corporation that clears and settles trades, either for its own account or on behalf of clients. Clearing members must meet capital adequacy and margin requirements set by the clearing corporation and SEBI.

An agent of a depository, typically a bank or broker, that opens demat accounts, processes investor instructions, and maintains records of securities holdings. DPs are registered with SEBI and linked to depositories such as NSDL and CDSL.

An institution that holds securities in electronic form on behalf of investors and facilitates transfer of ownership without physical certificates. India's two main depositories are NSDL and CDSL, both regulated by SEBI under the Depositories Act, 1996.

Short for dematerialisation, the process of converting physical share certificates into electronic form held in a depository account. Once dematerialised, securities can be transferred electronically, eliminating the risks of forged or lost certificates.

An electronic account opened with a depository participant that holds an investor's securities in dematerialised form. It functions like a bank account for shares, recording credits from purchases and debits from sales or transfers.

The date on which a trade's obligations are finally discharged, with securities and funds exchanged between parties. It is distinct from the trade date and determines the point at which ownership and payment legally transfer.

The settlement process in which buyers pay funds and sellers deliver securities to the clearing corporation (pay-in), after which the clearing corporation releases securities to buyers and funds to sellers (pay-out). Pay-in precedes pay-out.

A situation where a seller fails to deliver the full quantity of securities sold by the settlement date. The clearing corporation may close out the position by auctioning securities or by buying them in the market, with costs borne by the defaulting seller.

A mechanism used to resolve short deliveries, where the clearing corporation arranges to buy the missing securities from the market or through a formal auction. The defaulting seller bears the price difference and any penalties.

A SEBI-registered entity that safeguards clients' securities, processes corporate actions, and settles institutional trades on behalf of foreign and domestic institutional investors. Custodians hold assets in segregated accounts and report holdings to clients.

Any event initiated by a company that affects its securities, such as dividends, bonus issues, rights issues, splits, mergers, or buybacks. Operations teams must process these accurately so client entitlements and holdings are correctly adjusted.

The date fixed by a company for determining which shareholders are entitled to a dividend, bonus, rights, or other corporate benefit. Investors must hold shares on the record date to qualify for the entitlement.

The date from which a security trades without entitlement to a declared corporate action. Buyers purchasing on or after the ex-date do not receive the benefit, while sellers who sold before it retain the entitlement.

A term describing a trade in which the buyer is entitled to a pending corporate action benefit because the trade was executed before the ex-date. Settlement and corporate action processing must reflect the correct entitlement.

Collateral, in cash or securities, collected from clients and members to cover potential losses from default or adverse price movement. Margins include initial margin, exposure margin, and mark-to-market margins set by exchanges and clearing corporations.

The daily revaluation of open positions to current market prices, with resulting gains or losses settled in cash. MTM ensures that unrealised losses are collected regularly rather than accumulating until default.

A fund maintained by a clearing corporation from member contributions and other sources to compensate for losses arising from member defaults. It supports the clearing corporation's guarantee of settlement to non-defaulting members.

The risk that the other party to a trade fails to fulfil its obligations, whether by not paying funds or not delivering securities. Central clearing through novation is the primary mechanism used to mitigate this risk in exchange-traded markets.

The set of policies, controls, and processes used to identify, measure, monitor, and mitigate exposures arising from trading, settlement, liquidity, and operations. Effective risk management protects firms, clients, and market integrity.

The risk of loss because a borrower or counterparty fails to meet a financial obligation on time. In securities operations, it arises from margin funding, counterparty exposures, and unsettled trades awaiting payment.

The risk that a firm cannot meet its cash or collateral obligations when due, or cannot sell an asset quickly without a significant price concession. It can arise from timing mismatches between pay-in and pay-out.

The risk of loss from inadequate or failed internal processes, people, systems, or external events. Examples include settlement errors, system outages, fraud, and documentation failures in back-office operations.

The mandatory process of verifying a client's identity, address, and financial profile before opening an account or providing services. In India, KYC records are maintained through registered KYC Registration Agencies (KRAs) under SEBI norms.

Laws, regulations, and procedures designed to prevent the laundering of proceeds of crime through the financial system. Firms must monitor transactions, report suspicious activity, and maintain records as required by regulators.

A report filed with the Financial Intelligence Unit (FIU-IND) when a firm detects a transaction that appears unusual or potentially linked to money laundering or terrorist financing. STRs are confidential and must be filed promptly.

The natural person who ultimately owns or controls a client or the funds behind a transaction, even if the account is held in another name. Identifying beneficial owners is central to KYC and AML compliance.

The process of admitting a new client, covering documentation, KYC verification, risk profiling, account setup, and agreement signing. Robust onboarding prevents fraud and ensures regulatory compliance before trading begins.

The authoritative record of a client's details, including identity, bank accounts, demat accounts, and risk profile, maintained by a broker. Accurate client master data is essential for settlement, reporting, and regulatory checks.

The creation of a security interest over demat holdings in favour of a lender, commonly used for margin funding or loans against securities. The pledge must be recorded with the depository and released once the obligation is met.

The process of comparing internal records with external statements, such as depository holdings, bank balances, or exchange obligations, to identify and resolve discrepancies. Regular reconciliation is a core operational control.

The automated, end-to-end processing of transactions without manual re-entry of data between systems. STP reduces errors, shortens settlement cycles, and lowers operational risk in trade capture, confirmation, and settlement.

The process by which the details of a trade, such as price, quantity, and settlement terms, are verified and agreed between counterparties or between a broker and client. Confirmation reduces disputes and failed settlements.

A documented set of procedures enabling a firm to continue critical operations during and after disruptions such as system failures, natural disasters, or cyber incidents. BCPs include backup sites, data recovery, and periodic testing.

The technical arrangements, including backup systems, data replication, and alternate sites, that restore IT services after a failure. It forms part of a broader business continuity framework and must be tested regularly.