Clearing overview - CCP: Difference between revisions

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***Clients have full [[credit risk]] to the [[client money]] [[bank]].  
***Clients have full [[credit risk]] to the [[client money]] [[bank]].  
***A [[client money]] [[bank]] is not in scope for the [[broker]]’s [[LER]] calculations.
***A [[client money]] [[bank]] is not in scope for the [[broker]]’s [[LER]] calculations.
**'''Client risk to [[intermediary|intermediaries]]''': [TO CHECK WITH SS – wouldn’t the [[client money]] regime deliver [[limited recourse]] because it becomes the client’s secondary pooling event?][Depends on [[limited recourse]] – see below.] [SS: '''{{font colour|red|Yes}}'''this would be a secondary pooling event under UK CASS rules, but TBD how this is treated under non-UK [[client money]] rules.] <br>
**'''Client risk to [[intermediary|intermediaries]]''': [TO CHECK]<br>
'''Non-[[cash]]/Securities [[margin]]''':  securities are not an abstract token of value but a representation of a financial right to or over something. It is possible to hold a security without being its owner, and deliver a security to another person without. This means that, unlike [[cash]], one can hold a non-[[cash]] asset as a [[fiduciary]] on behalf of another person.
'''Non-[[cash]]/Securities [[margin]]''':  securities are not an abstract token of value but a representation of a financial right to or over something. It is possible to hold a security without being its owner, and deliver a security to another person without. This means that, unlike [[cash]], one can hold a non-[[cash]] asset as a [[fiduciary]] on behalf of another person.
*'''[[Title transfer]]''': client delivers asset by outright [[title transfer]] to [[broker]]. There is no purported custody arrangement: The [[broker]]’s obligation, to return an equivalent asset at the end of the transaction, is a debt claim in the client’s hands. As it owns them outright, there are no restrictions in what the [[broker]] can do with the assets (it can, but need not, post them to [[intermediary|intermediaries]]). Note – there is a minor risk to loss of assets in the hands of the [[custodian]].
*'''[[Title transfer]]''': client delivers asset by outright [[title transfer]] to [[broker]]. There is no purported custody arrangement: The [[broker]]’s obligation, to return an equivalent asset at the end of the transaction, is a debt claim in the client’s hands. As it owns them outright, there are no restrictions in what the [[broker]] can do with the assets (it can, but need not, post them to [[intermediary|intermediaries]]). Note – there is a minor risk to loss of assets in the hands of the [[custodian]].

Latest revision as of 17:33, 30 April 2019

Brokerage Anatomy™
FIA/ISDA documentation |
Trading capacities: Principal | Undisclosed principal Riskless principal | Agent | Undisclosed agent

Broker types: Broker | Dealer | Broker/dealer | Executing broker | Clearing broker | Prime broker | FCM | CCP

Clearing: Clearing overview | How clearing works | What gets cleared? | Who clears? | Clearing documentation
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Cash margin: Note that it is legally impossible to separate possession and ownership of cash. Any person holding cash is, against all other persons in the world, its outright owner: a payee can therefore assume a payer has good title to any cash it pays. This guarantees commercial certainty for cash and preserves its status as an abstract token of value and not an asset.

Non-cash/Securities margin: securities are not an abstract token of value but a representation of a financial right to or over something. It is possible to hold a security without being its owner, and deliver a security to another person without. This means that, unlike cash, one can hold a non-cash asset as a fiduciary on behalf of another person.

intermediaries


Margin Type Transfer Type Client Risk

(Broker)

Client Risk

(Bank/Custodian)

Client Risk

(Intermediary)

Broker Risk

(Bank/Custodian)

Broker Risk

(Intermediary)

Cash Outright transfer Yes No - it's the Broker's bank. Depends on limited recourse Yes Depends on limited recourse
Cash Client money No Yes – it is client’s bank Generally Yes but limited recourse language will help No Generally Yes but limited recourse language will help
Securities Outright transfer Yes No - it's a custody asset. Yes, if limited recourse No No
Securities Pledge No, unless a right of rehypothecation, in which case Yes. No If re-pledged: No. If rehypothecated: Depends on limited recourse. No Depends on limited recourse.