Template:Clearing house: Difference between revisions
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A [[clearing house]] is to | A clearing house]] (a.k.a. a [[central clearing counterparty]] or [[CCP]]) well-capitalised intermediary body that [[clearing|clears]] and settles transactions executed on [[exchange]]. The [[exchange]] is the place where you ''execute'' the trade; the [[clearing house]] is where you ''settle'' it. Most [[exchange]]s will have an associated [[clearing house]]. So [[initial margin]], DVP and all that — all that happens on the clearing house. [[Exchange]]s don’t themselves call for [[margin]]. | ||
A [[clearing house]] is designed to protect the parties to a transaction on an [[exchange]] from the counterparty [[credit risk]] they have to one other. | |||
If one of them defaults, the [[clearing house]] steps in to take over the defaulting party's obligations, and fulfils them (usually by finding another market participant to take over the contract) | If one of them defaults, the [[clearing house]] steps in to take over the defaulting party's obligations, and fulfils them (usually by finding another market participant to take over the contract) | ||
[[Clearing house]]s require [[initial margin]] from both parties (as well as [[default fund contribution|default fund contributions]] and other fun things like that) 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 [[default fund contribution|default fund contributions]] and other fun things like that) at the start of the contract which they use to manage the default. | ||
Latest revision as of 08:31, 30 April 2019
A clearing house]] (a.k.a. a central clearing counterparty or CCP) well-capitalised intermediary body that clears and settles transactions executed on exchange. The exchange is the place where you execute the trade; the clearing house is where you settle it. Most exchanges will have an associated clearing house. So initial margin, DVP and all that — all that happens on the clearing house. Exchanges don’t themselves call for margin.
A clearing house is designed to protect the parties to a transaction on an exchange from the counterparty credit risk they have to one other.
If one of them defaults, the clearing house steps in to take over the defaulting party's obligations, and fulfils them (usually by finding another market participant to take over the contract)
Clearing houses require initial margin from both parties (as well as default fund contributions and other fun things like that) at the start of the contract which they use to manage the default.