What is a Derivatives Clearing House? What do they do?

What is a Derivatives Clearing House? What do they do?

After legally-binding trade between a buyer and a seller, the role of the clearing house is to centralize and standardize all of the steps leading up to the settlement of the transaction. The purpose is to reduce the cost, settlement risk and operational risk of clearing and settling multiple transactions among multiple parties.

In addition to the above services, central counterparty clearing (CCP) takes on counterparty risk by stepping in between the original buyer and seller of a financial contract, such as a derivative. The role of the CCP is to perform the obligations under the contract agreed between the two counterparties, thereby removing the counterparty risk the parties of the contract had to each other and replacing it with counterparty risk to a highly regulated central counterparty that specializes in managing and mitigating counterparty risk.

[lukasp.]

This series is criminally underrated, thanks for the videos, keep up the good work!

[koidemasi]

😂😂😂...and if you don't like the video...click the like button too and try to be more positive..😂😂😂

[primitivaroots]

Thank you. I am greatly enjoying your classes.

[juliangitta]

well done Patrick another lovely video

[raniasamir]

What is the difference between the ccp that clears OTC derivatives and the clearing house that settles exchange traded derivatives? Are they two separate entities ? Do they bear different risks?

[vampireu]

Please blink more 💪🏾 love your content god bless

[irtrader]

Hey thank you for such as content, What I have understand that the clearing house takes the opposite direction of each contract have cleared, it goes long when a member goes short and goes short when a members goes long! it takes the counterparty of each transaction to avoid the counterparty risk of default. great! but do clearing house take losses! suppose that there are more long contract than the shorted one and the market participant were right? I

[michelemcgarvey]

So the clearinghouse is where the market margin is kept? Is it held there?

[kwadwoamponsah]

4 people need a more positive attitude