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I Introduction to OTC Derivatives Clearing in Europe, 2 OTC Derivatives Clearing Explained

Tina Hasenpusch and, Rezah Stegeman

From: Clearing OTC Derivatives in Europe

Edited By: Bas Zebregs, Victor de Seriere, Rezah Stegeman, Patrick Pearson

From: Oxford Legal Research Library (http://olrl.ouplaw.com). (c) Oxford University Press, 2023. All Rights Reserved.date: 13 April 2024

Subject(s):
Derivatives — Central counterparty (CCP)

This chapter discusses the concept of clearing, providing a definition of ‘clearing’ from various perspectives: a process view, a functional view, and a product view. The process view refers to clearing as a process that constitutes a vital part of the life cycle of a trade. The functional view focuses on clearing as a service and details the various value-chain components. Meanwhile, the product view concentrates on the peculiarity of clearing over-the-counter (OTC) derivatives. The chapter then looks at the different clearing services, including cleared trade confirmation, transaction/position management, delivery management, novation, netting, risk management, collateral management, and cash management. It also considers the benefits of central counterparty (CCP) clearing, which has become such an integral part of modern financial market structures. From a microeconomic perspective, CCPs provide benefits and value-added for individual market participants. In macroeconomic terms, CCPs are key infrastructures, playing a vital role by facilitating the smooth and frictionless functioning of financial markets, thus increasing their efficiency, supporting financial stability, and reducing systemic risks.

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