As we can see, the GCM and DCM have a direct relationship with
the clearing house. The DCM can only clear business of an affiliated
company who is a NCM of Eurex whereas the GCM can clear busi-
ness for any NCM.
Customers can have a relationship with the GCM, DCM, an affiliated
NCM of the DCM or any NCM of the exchange.
The Options Clearing Corporation (OCC)
Options Clearing Corporation is the largest clearing organisation in
the world for options and was the first clearing house to receive
an AAA rating from Standard & Poor’s Corporation. Operating under
the jurisdiction of the Securities and Exchange Commission (SEC)
and the CFTC, OCC clears US-listed options, futures and options on
futures on a number of underlying financial assets including stocks,
currencies, stock indexes and interest rate products. The OCC’s
Clearing Membership consists of approximately 130 of the largest
US broker/dealers, US futures commission merchants and non-US
securities firms representing both professional traders and public cus-
tomers. The American Stock Exchange, the Chicago Board Options
Exchange, the International Securities Exchange, the Pacific Exchange
and the Philadelphia Stock Exchange share equal ownership of OCC.
It has in recent years developed and introduced a completely new
clearing system called ENCORE.
The ENCORE has enabled real-time processing capabilities, increased
flexibility by accommodating growth in options volume and new prod-
ucts, and provided secure Internet access to OCC’s customers.
There are several key stages in the ‘clearing process’ much of which
is generic across clearing houses.
A key stage is when and how the counterparty relationship between
the two parties to the trade on the exchange converts to a relationship
between the clearing house and each of the trade participants. That
stage is often referred to as novation.
The process of creating the trade in the name of the clearing house
as counterparty to each member is called novation. In this process
the clearing house becomes buyer to every seller of each transaction
40 Clearing and settlement of derivatives