Clearing and Settlement of Derivatives

Regulation and compliance

Derivatives are not always the best instrument to use for investment

strategies. Sometimes derivatives create what is known as contingent

liabilities, a situation where there is an ongoing actual or potential

settlement process. In other words, there is more than one settlement

amount that might create funding issues, for example VM.

Other kind of contingent liabilities relate to issues like the ability to

simultaneously close out one derivative position and open another or

to trade two opening transactions together. If this is not achieved

then there is likely to be some funding or exposure issues created. ...