SCA Clearing, Settlement and Custody 3

Question 1

In custodial services, what is an 'omnibus account' at a central securities depository?

Accepted Answer

A pooled account where a custodian holds securities of multiple underlying clients under the custodian's own name

Answer

An omnibus account pools the securities of multiple beneficial owners under the custodian's name at the CSD level, without identifying individual clients in the depository's records.

Question 2

Which of the following best describes 'principal risk' in securities settlement?

Accepted Answer

The risk that a party delivers securities or cash but does not receive the corresponding value from the counterparty

Answer

Principal risk is the risk of losing the full value of a transaction because one party fulfills its delivery obligation while the counterparty fails to deliver, resulting in a loss equal to the full principal amount.

Question 3

What is the purpose of a 'securities lending' program in the context of settlement operations?

Accepted Answer

To allow borrowers to temporarily obtain securities, often to cover short positions or avoid settlement fails

Answer

Securities lending allows institutions to temporarily borrow securities (providing collateral in return) typically to cover short positions, facilitate market-making, or prevent settlement fails.

Question 4

What is 'pre-settlement risk' (also known as replacement cost risk) in securities markets?

Accepted Answer

The risk that a counterparty defaults before settlement, requiring replacement of the trade at potentially unfavorable market prices

Answer

Pre-settlement risk is the risk that a counterparty defaults during the period between trade execution and settlement, forcing the surviving party to replace the contract at current market prices, which may be worse than the original terms.

Question 5

Under SCA's oversight framework, what is SCA's primary responsibility regarding clearing and settlement infrastructure?

Accepted Answer

To supervise and regulate clearing and settlement systems to ensure their safety, integrity, and efficiency

Answer

SCA is responsible for supervising and overseeing the clearing, settlement, and depository infrastructure to ensure these systems operate safely, efficiently, and in accordance with applicable regulatory standards.

SCA Practice Test

SCA Practice Test

SCA Clearing, Settlement and Custody 3