1 - definition + purpose of clearing

what does every major exchange have

a clearing house

what is the name of the clearing house for most major exchanges

linked directly to the name of the exchange (eg. LME and LME Clear)

what are the names of the clearing houses for LSE Derivatives (aka CurveGlobal Markets)

EuroCCP

LCH Group

EMCF

x-clear

what is the name of the clearing house for OSE (osaka securities exchange)

JSCC —> japan securities clearing corporation

what is the name of the clearing house for DME (dubai mercantile exchange)

CME Clearing

what is a MOS

mutual offset system:

links two diff exchanges + their clearing houses

give an example of a MOS you should know of

the one between the CME group and the SGX (singapore exchange)

why link two exchanges

extends trading hours since they operate in diff time zones

show the stucture of the clearing system

.

what is a principal to principal guarantee

an arrangement where the clearing house guarantees trades directly to its clearing members rather than to every individual trader

two types of guarantee

mutual

independent

mutual guarantee

UK clearing houses

clearing members collectively share the risk of a member defaulting (contribute to a central default fund)

how do they decide how much u put in the central default fund

the more u use the clearing house the more u have to contribute

another term for central default fund

clearing fund

independent guarantee

US clearing houses

each clearing member’s obligations + risks are dealt with separately (no central default fund)

what is novation

the process that CCPs do

how is netting done with a CCP

so the ones that cancel out are ‘closed out’

if a clearing member defaults, what are the 4 ways the clearing house can cover the losses

in this order (like if one isn’t enough u go down to the next then the next etc):

1. defaulting member’s margin

2. central default fund (only for a mutual guarantee tho)

3. insurance

what is uncovered risk

the amount that a clearing house still cannot cover after using all the available resources

is insurance still used

no it was cancelled in 2010 because after the collapse of lehman’s they didn’t even need to go past stage 1 (the margins)

why was the fallout from lehman’s seemingly so small here

bc this is exchange traded stuff so v regulated

the real issues came from the OTC trades lehman was involved in, which was chaos