From the point of view of trading through a CCP, one can consider three types of participant:
These relationships are illustrated in Figure 7.4.
A GCM or ICM will typically be a large bank or dealer who has a large number of counterparties. An NCM is more obviously characterised by an end-user of OTC derivatives that may channel most or all of its trades through a single counterparty. By this counterparty being a GCM, the end-user can gain benefits from central clearing even though they are not a clearing member. Whilst these are the more obvious roles of members, they are not the only characterisations: for example, a GCM may in fact be another CCP and an NCM may be a smaller bank.
Variation margin is a simple concept, which is an adjustment for the change in valuation of the relevant positions at periodic intervals of at least daily frequency. A CCP may also make intraday margin calls if large price movements ...