Clearing House
Intermediary ensuring each party to a trade meets its obligations.
Detailed Description
Clearing House
What is the primary function of a clearing house?
The primary function of a clearing house is to manage the clearing and settlement of financial transactions, ensuring trades are executed efficiently and obligations are fulfilled.
What are Central Counterparties (CCPs)?
Central Counterparties (CCPs) are clearing houses that act as the buyer to every seller and the seller to every buyer, reducing counterparty risk in derivatives and securities markets.
What are some benefits of using a clearing house?
Benefits include risk mitigation, increased efficiency, transparency, and standardization of trading processes.
What risks are associated with clearing houses?
Risks include operational risk, liquidity risk, and concentration risk, which can lead to systemic issues if a clearing house faces financial difficulties.
How do clearing houses impact market liquidity?
Clearing houses enhance market liquidity by facilitating efficient trade execution and providing a reliable platform for settlement, leading to increased trading volumes.