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← Series 7: Order Processing & Trade Settlement
Series 7 practice questionhardClearing Corporations — NSCC/DTCC

A large broker-dealer executes thousands of trades per day with multiple counterparties. What is the primary function of the National Securities Clearing Corporation (NSCC) in processing these trades?

  1. ASetting the prices at which securities trade on exchanges
  2. BProviding investment advice to broker-dealers about trade execution
  3. CActing as a central counterparty and netting trades to reduce the number and value of settlements required✓ Correct answer
  4. DRegulating the broker-dealer's compliance with FINRA rules
Explanation

Why C — Acting as a central counterparty and netting trades to reduce the number and value of settlements required

The NSCC, a subsidiary of the Depository Trust & Clearing Corporation (DTCC), serves as a central counterparty for virtually all broker-to-broker trades in equities, corporate bonds, and municipal bonds. Its primary function is trade comparison, netting, and settlement. Through multilateral netting, the NSCC reduces the number and value of transactions that need to settle, significantly lowering the amount of cash and securities that must change hands. The NSCC also guarantees the completion of trades, reducing counterparty risk in the settlement process.

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