Central Counterparty Clearing Houses Ccps

The financial organizations, often functioning under major banks, established with the aim to make trading easy in derivatives and equities and guaranteeing efficiency and stability in financial markets are called Central counterparty clearing houses (CCPs).
In the intermediary transactions, there are two main functions of CCP


  • Clearing

  • Settlement


What is clearing?


The process in which CCP becomes the counterparty to the buyer and the seller is called clearing.
The CCP defines what is required from each party in a transaction to reduce counterparty credit risk and to guarantee the settlement of the transaction, even if one of the parties defaults.
The CCP specifies the requirement from each party to the transaction for the reduction of the counterparty credit risk and ensures the settlement of the transaction, even if one of the parties is in default.


What is settlement?


In the settlement process, the CCP oversees the correct and timely transfer of securities and/or cash between the parties to complete the transaction.
The CCP directs the accurate and on tome transfer of securities and / or cash between the parties to complete the transaction in the settlement process.
After a transaction between two counterparts, it is transferred to CCP.
The CCP then accepts the risk of the counterparty to transact for both counterparts.
Risk assessment, clearing, settlement, and general market oversight are the key responsibilities of CCP.

 

A

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B

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C

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E

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