Series 99 Trade Settlement & Clearance Procedures

Question 1

What does trade settlement mean?

Accepted Answer

Transfer and payment

Answer

Trade settlement refers to the final stage of a securities transaction where the buyer pays for the securities and the seller delivers them. It ensures the actual transfer of ownership and funds between the parties involved, completing the transaction and updating ownership records.

Question 2

What is T+2 settlement cycle?

Accepted Answer

Two days after trade

Answer

The T+2 settlement cycle means that a trade must be settled two business days after the trade date (T). This standard applies to most equities, corporate bonds, and municipal bonds, allowing sufficient time for the necessary transfers of ownership and funds to occur efficiently and securely.

Question 3

Who ensures trades clear properly?

Accepted Answer

Clearing firm

Answer

A clearing firm, also known as a clearing broker, is responsible for ensuring that trades clear and settle properly. They handle the back-office functions, including confirming transactions, exchanging securities and funds, and maintaining records for both sides of a trade, thereby facilitating the smooth operation of financial markets.

Question 4

What is a fail-to-deliver?

Accepted Answer

Missed delivery

Answer

A 'fail-to-deliver' occurs when the selling party in a securities transaction does not deliver the securities to the buying party by the settlement date. This can happen for various reasons, such as a short seller being unable to borrow shares, and can lead to regulatory consequences and market inefficiencies.

Question 5

What is the DTCC?

Accepted Answer

Clearing house

Answer

The Depository Trust & Clearing Corporation (DTCC) is a critical financial market utility that provides clearing, settlement, and information services for a wide range of financial instruments. It acts as a central clearing house, significantly reducing risk and increasing efficiency in the financial markets by centralizing the processing of transactions.

(Series 99) Operations Professional Exam Practice Test

(Series 99) Operations Professional Exam Practice Test

Series 99 Trade Settlement & Clearance Procedures