Self-clearing member
Also written SCM · Self Clearing Member (SCM)
A trading member who is also a clearing member, but may clear and settle only his own proprietary trades and his own clients' trades — never the trades of other trading members.
In plain language
Every trade on the derivatives segment has to be cleared and settled by a clearing member. A trading member who does not want to depend on someone else for that can become a clearing member himself.
If he clears only his own business — his proprietary trades and the trades of his own clients — he is a Self Clearing Member. The workbook's definition: a Self Clearing Member is also a Trading Member on the exchange. Such CMs may clear and settle only their own proprietary trades and their clients' trades but cannot clear and settle trades of other Trading Members.
That limitation is the whole identity of the category. The moment a member wants to clear for other trading members, it needs to be a trading-cum-clearing member instead — with a higher net worth and additional deposits for every trading member it takes on.
How it works
The three clearing member types side by side (Chapter 6, section 6.1 and Chapter 7, section 7.1):
| Type | Is a trading member? | Clears own trades and own clients' | Clears other TMs' trades |
|---|---|---|---|
| Self Clearing Member | Yes | Yes | No |
| Trading cum Clearing Member | Yes | Yes | Yes, and custodial participants' |
| Professional Clearing Member | No | — | Yes (typically banks or custodians) |
Financial requirements — the workbook states them in two places, in two units, and they agree:
| Requirement | Self Clearing Member | Clearing member clearing for others |
|---|---|---|
| Balance sheet net worth | Rs 100 lakh = Rs 1 crore | Rs 300 lakh = Rs 3 crore |
| Liquid net worth with exchange / clearing corporation | Rs 50 lakh | Rs 50 lakh |
| Extra deposit per additional TM cleared | Not applicable | Rs 10 lakh each |
Chapter 7 adds a deposit of Rs 50 lakh to the clearing corporation forming part of the clearing member's security deposit. Clearing members must furnish an auditor's certificate of net worth every 6 months, and their liquid assets must be at least 50% cash component.
A worked example
Illustrative comparison. The firms are hypothetical; the amounts are the workbook's requirements.
Three brokers want to set up in the F&O segment.
Sharma Securities will clear only its own and its clients' trades → Self Clearing Member.
Net worth needed = Rs 1 crore
Liquid net worth = Rs 50 lakh
Per-TM deposits = nil (it cannot clear for other TMs)
Iyer Capital will clear its own trades and also those of 4 other trading members → Trading cum Clearing Member.
Net worth needed = Rs 3 crore
Liquid net worth = Rs 50 lakh
Additional deposits = 4 × Rs 10 lakh = Rs 40 lakh
A custodian bank will not trade at all, only clear for trading members and institutional clients → Professional Clearing Member, with the same Rs 3 crore net worth and the same Rs 10 lakh deposit for each trading member it clears.
If Sharma Securities later agrees to clear for a small broker friend, it is no longer allowed to do so as an SCM. It must upgrade — and its net worth requirement triples.
Why NISM asks about it
Chapter 6, section 6.1, defines the SCM among the entities in F&O trading. Chapter 7, section 7.1, lists the three clearing member types and the eligibility norms in lakhs. Chapter 8, section 8.5, repeats the norms in crores. The classic question gives a description ("clears its own and its clients' trades but not those of other members") and asks for the category, or asks for the net worth of an SCM.
Common exam traps
- An SCM cannot clear other trading members' trades. That is the defining restriction.
- Rs 1 crore versus Rs 3 crore. The SCM figure is the lower one. Chapter 7 writes these as Rs 100 lakh and Rs 300 lakh — the same numbers.
- Liquid net worth is Rs 50 lakh for both SCMs and other clearing members.
- The Rs 10 lakh per trading member deposit applies to TCMs and PCMs, not to SCMs.
- An SCM is a trading member; a PCM is not.
Where this is taught
- Series IV · Chapter 7: Clearing, Settlement and Risk Management of IRDintroduced here
- Series I · Chapter 7: Clearing, Settlement and Risk Management in ETCDintroduced here
- Series VIII · Chapter 6: Trading Mechanismintroduced here
- Series VIII · Chapter 7: Clearing, Settlement and Risk Management
- Series VIII · Chapter 8: Legal and Regulatory Environment
Related terms
- Professional Clearing MemberA clearing member — typically a bank or custodian — who clears and settles trades for other trading members and institutional clients but is not itself a trading member of the exchange.
- Clearing corporationThe entity that steps between every buyer and seller in the derivatives segment by novation, becoming the counterparty to both sides and guaranteeing that the trade settles.
- Trading memberA member of a stock exchange who trades on behalf of clients or on his own account, under a trading member ID shared by all his registered users — and who must clear through a clearing member.
- Trading cum clearing memberA clearing member who is also a trading member of the exchange, and may clear and settle its own trades, its clients' trades, and the trades of other trading members and custodial participants.