development of on-line trade entry and risk analysis systems. The
Clearing Corporation continues to make every effort to enhance the
clearing and settlement process for its members.
Source: Clearing Corporation website.
The statement above sums up many of the attributes of a clearing
house in general and today the many clearing houses that operate do
so with efficiency, cost effectiveness and security of the markets and
members as their primary objectives.
We can look at some of the clearing houses and in doing so build up
a picture of the role of these important organisations in the market
infrastructure.
We can start with a clearing house closely linked to the CCorp
through the Eurex exchange.
Eurex AG
To be eligible for clearing membership of Eurex, an organisation
must be a financial institution located within the European Union or
Switzerland authorised to operate custody business, credit opera-
tions and receipt of margin by customers in the form of securities
and cash. Applicants must have a prescribed level of proven equity
capital as well as contribute a specific amount to the Eurex Clearing
AG clearing fund.
Clearing Members can be either General Clearing Member (GCM)
or Direct Clearing Members (DCM). General Clearing Members are
authorised to clear their own transactions as well as those of their
customers and those of Non Clearing Members clearing through
them. Direct Clearing Members are entitled to carry out the clearing
for their own transactions, those of their customers and of affiliated
NCMs. Although the clearing member is responsible for settlement,
there is the possibility to stipulate a separate settlement institution
for the settlement of transactions.
There are prerequisites for settlement, which include an account
at the Bundesbank (of the Federal Republic of Germany) and a secu-
rities account at one central depository recognised by Eurex Clearing
AG. These accounts are to be held either by the settlement institu-
tion or by the clearing member with the necessary power of attorney.
Importantly one of the requirements is that the Settlement Institu-
tion shall use appropriate technical equipment including back-office
systems in order to guarantee the correct recording, accounting
and supervision of all transactions. A combination of the functions
38 Clearing and settlement of derivatives
of trading, clearing and settlement are possible within a financial
institution.
The structure and relationships possible with Eurex AG are shown
below in Figures 3.1 and 3.2.
The role of the clearing house 39
Figure 3.1 Eurex AG Structure. Source: Eurex.
Frankfurter
Wertpapierborse
(Equities)
Eurex
Eurex
Bonds
GmbH
Eurex
Repo
GmbH
Other
Markets
Eurex
Clearing
AG
National
Central
Securities
Depositories
International
Central
Securities
Depositories
Eurex AG
Non
Clearing
Member
General
Clearing
Member
Direct
Clearing
Member
Company
Affiliated Non
Clearing
Member
Customer Customer Customer
Customer
Figure 3.2 Eurex AG Structure. Source: Eurex AG.
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