Securities Operations and Risk Management (SORM)
What this domain tests
Series VII covers everything after an order is matched: clearing, settlement, depository movement, margin collection, client-asset segregation and the risk controls run by a broker's back office. Questions are process- and number-driven, so know who acts, on which day, and who absorbs the loss when something fails.
Settlement mechanics
- NSE and BSE equity trades settle on T+1 (phased rollout, completed by end-January 2024); a T+0 beta exists separately for a limited set of scrips.
- The clearing corporation - NSCCL, ICCL or MCCL - interposes itself through novation, so the member's counterparty is the CC, not the original buyer or seller.
- Securities and funds pay-in on T+1, pay-out the same day; delivery shortfalls go to auction or close-out.
Margins and risk controls
- Cash-segment margin = VaR margin + extreme loss margin, taken upfront on the client's gross exposure.
- Under the peak-margin framework, intraday positions are sampled and penalties are charged on the peak shortfall, not the end-of-day number.
- At least 50% of client margin must be in cash/cash equivalents, client funds are upstreamed to the CC or clearing member by T+1, and client accounts stay segregated.
Worked example
A client sells 5,000 shares and delivers none. Pay-in is 10 June; the exchange closes out on 12 June. The highest traded price between those dates is ₹412. Close-out value = 412 × 1.20 = ₹494.40 per share, i.e. ₹24,72,000 for 5,000 shares. The member funds this to the clearing house, recovers the sale proceeds already credited to the client, and recovers the balance plus penalty from the client. The member's own margin is touched only if the client defaults.
Traps
- Ex-date versus record date: the ISIN is suspended for the corporate action on the ex-date, and only positions held on or before the cum-date carry the entitlement.
- Using last traded price instead of the highest price from pay-in to close-out.
- Counting pledged shares as the "cash" half of the 50% requirement.
- Assuming the Settlement Guarantee Fund answers first - the defaulter's own margins are exhausted before the core SGF.