Clearing, Settlement and Custody Flashcards

What is the standard settlement cycle for equity securities traded on SCA-regulated UAE financial markets?

Answer: T+2 (two business days after trade date)

UAE equity markets follow a T+2 settlement cycle, meaning transactions settle two business days after the trade execution date.

What is the primary purpose of a Central Counterparty (CCP) in UAE securities markets?

Answer: To interpose itself between buyer and seller, becoming the legal counterparty to both and eliminating bilateral counterparty risk

A CCP becomes the buyer to every seller and the seller to every buyer, guaranteeing trade settlement and eliminating bilateral counterparty risk from the market.

What does 'Delivery versus Payment' (DvP) mean in the context of securities settlement?

Answer: Securities are transferred and cash is paid simultaneously, eliminating principal risk

DvP ensures the irrevocable transfer of securities occurs simultaneously with the irrevocable transfer of funds, eliminating the risk that one party delivers without receiving the corresponding value.

What is the primary function of a Central Securities Depository (CSD) in UAE capital markets?

Answer: To maintain the central register of securities ownership and facilitate settlement through book-entry transfers

A CSD maintains the official central register of securities ownership and enables settlement by recording transfers between accounts electronically without movement of physical certificates.

In UAE securities markets, which of the following best describes a 'settlement fail'?

Answer: A situation where a party fails to deliver securities or funds on the agreed settlement date

A settlement fail occurs when either the seller fails to deliver the securities or the buyer fails to provide the required funds by the scheduled settlement date.

What is the primary role of a custodian bank in UAE securities markets?

Answer: To safeguard clients' securities and cash, process corporate actions, and facilitate settlement

Custodians safeguard clients' securities and cash assets, process corporate actions such as dividends and rights issues, and provide settlement and reporting services on behalf of their clients.

What does 'dematerialization' of securities mean in the context of UAE capital markets?

Answer: The conversion of physical share certificates into electronic book-entry records held at a CSD

Dematerialization converts physical securities certificates into electronic records maintained at the central securities depository, eliminating risks and costs associated with physical certificates.