Clearing: Difference between revisions
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If one of the parties in the deal goes into default, the clearing house takes over the defaulting party's obligations and fulfils them (either themselves or by finding another market participant will to take over the contract) | If one of the parties in the deal goes into default, the clearing house takes over the defaulting party's obligations and fulfils them (either themselves or by finding another market participant will to take over the contract) | ||
[[Clearing house]s require [[initial margin]] from both parties (as well as defasult fund contributions and other fun things) at the start of the contract which they use to manage the default. | [[Clearing house]]s require [[initial margin]] from both parties (as well as defasult fund contributions and other fun things) at the start of the contract which they use to manage the default. | ||
Revision as of 12:49, 25 March 2019
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Brokerage Anatomy™
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A clearing house is to protects the partierds to a transaction on an exchange from the counterparty credit risk they face to each other.
If one of the parties in the deal goes into default, the clearing house takes over the defaulting party's obligations and fulfils them (either themselves or by finding another market participant will to take over the contract)
Clearing houses require initial margin from both parties (as well as defasult fund contributions and other fun things) at the start of the contract which they use to manage the default.