UPSC Prelims Practice Questions — SEBI eases rules for early share delivery

Q1. With reference to a clearing corporation acting as the central counterparty in Indian equity markets, consider the following statements: Which of the statements given above is/are correct?

  1. Through novation, the clearing corporation becomes the legal counterparty to both the buyer and the seller of a trade.
  2. Because the clearing corporation bears the risk of a member's default, it collects margins from clearing members in relation to the risk of their open positions.
  3. Novation shifts the default risk of a trade from the clearing corporation to the stock exchange on which the trade was executed.
  • A. 2 and 3 only
  • B. 1 only
  • C. 1, 2 and 3
  • D. 1 and 2 only

Q2. Consider the following statements: Which of the following is correct in respect of the above statements?

  1. Under SEBI's amended early pay-in framework, stockbrokers need not collect additional margin to the extent covered by the accepted value of shares delivered early to the clearing corporation.
  2. Clearing corporations maintain a settlement guarantee fund that is used to complete settlement when a clearing member fails to honour its obligations.
  • A. Both Statement-I and Statement-II are correct and Statement-II explains Statement-I
  • B. Both Statement-I and Statement-II are correct, but Statement-II does not explain Statement-I
  • C. Statement-I is correct, but Statement-II is incorrect
  • D. Statement-I is incorrect, but Statement-II is correct

Q3. Under SEBI's amended framework, the clearing corporation computes an 'accepted early pay-in value' on the trade date as the lower of (i) the value of securities delivered early and (ii) the value of securities sold, and this value is recognised towards the seller's margin obligation. Which of the following inferences can be drawn from the above?

  1. Shares delivered early in excess of the shares actually sold do not earn any additional margin relief.
  2. An investor who delivers shares early cannot be asked for margin on any other position taken on the same trading day.
  3. The amendment transfers responsibility for computing margins from stockbrokers to the clearing corporation for the first time.
  • A. 1, 2 and 3
  • B. 1 only
  • C. 1 and 2 only
  • D. 2 and 3 only

Q4. With reference to settlement cycles in the Indian equity market, consider the following statements: Which of the statements given above is/are NOT correct?

  1. In a T+1 cycle, funds and securities for a trade are exchanged on the working day after the trade date.
  2. In rolling settlement, each day's trades are settled separately after a fixed number of working days, rather than all trades of an account period being settled together.
  3. A shorter settlement cycle makes a central counterparty unnecessary, since the buyer and seller settle before either can default.
  • A. 3 only
  • B. 1 and 3 only
  • C. 2 and 3 only
  • D. 1 only

Q5. Consider the following statements: Which of the following is correct in respect of the above statements?

  1. When a seller makes an early pay-in of securities, the buyer of those securities receives them before the scheduled settlement date.
  2. Under early pay-in, the seller transfers the securities to the clearing corporation, not directly to the buyer, ahead of the scheduled settlement date.
  • A. Both Statement-I and Statement-II are correct and Statement-II explains Statement-I
  • B. Both Statement-I and Statement-II are correct, but Statement-II does not explain Statement-I
  • C. Statement-I is correct, but Statement-II is incorrect
  • D. Statement-I is incorrect, but Statement-II is correct

Q6. An investor's sell order for shares is executed and settled on a recognised stock exchange in India. In which sequence do the following typically come into play, from placing the order to the shares finally being credited to the buyer's account?

  • A. Depository – Stock exchange – Stockbroker – Clearing corporation
  • B. Stock exchange – Stockbroker – Depository – Clearing corporation
  • C. Stockbroker – Stock exchange – Clearing corporation – Depository
  • D. Stockbroker – Clearing corporation – Stock exchange – Depository

Q7. Consider the following assertion: SEBI can require clearing corporations and stockbrokers to change the way margins are computed and collected. Which of the statements given below support/supports the above assertion?

  1. SEBI's board includes members drawn from the officials of the Union Finance Ministry and the Reserve Bank of India.
  2. The SEBI Act empowers SEBI to issue directions to persons associated with the securities market in the interest of investors and the orderly development of the market.
  3. The SEBI Act charges SEBI with regulating the securities market, in addition to protecting investors and promoting the market's development.
  • A. 1 and 2 only
  • B. 1, 2 and 3
  • C. 2 and 3 only
  • D. 1 and 3 only

Q8. With reference to depositories in India, consider the following statements: Which of the statements given above is/are correct?

  1. Depositories fall outside SEBI's regulatory domain because they are governed by a separate statute, the Depositories Act, 1996.
  2. Depository participants, through whom investors hold demat accounts, must obtain a certificate of registration from SEBI.
  • A. 1 only
  • B. 2 only
  • C. Both 1 and 2
  • D. Neither 1 nor 2