Financial Markets Operations Management

CHAPTER 5 Clearing Houses and CCPs

5.1 INTRODUCTION

Part Two of this book will take you through the post-trade processing of the financial instruments that you looked at in Chapter 2: Financial Instruments. We will do this by considering market infrastructures and trade lifecycles in the ways outlined in Table 5.1.

TABLE 5.1 Market infrastructures and trade lifecycles

Market Infrastructure	Trade Lifecycle
(a) Clearing houses and CCPs	Clearing
(b) Central securities depositories	Settlement and settlement fails management
(c) Custody intermediaries	The role of the custodians

It is not possible to cover every financial product in every market; this would indeed be a very large book! Instead, we will look at the major types of financial product with a brief description of the appropriate clearing system, depository and custody intermediaries; in particular, we will look at:

• Equities;
• Government bonds;
• Eurobonds;
• Exchange-traded derivatives (futures and options);
• Centrally cleared OTC derivatives (interest rate swaps);
• Non-cleared OTC derivatives (forward rate agreements).

In Section 5.5 at the end of this chapter you will find some useful information sources for infrastructural organisations such as the clearing houses, depositories and custodians together with statistical information. You might like to bookmark these organisations' URLs so that you can access their websites without too much trouble.

5.2 OVERVIEW OF CLEARING AND SETTLEMENT

For many people, ...