30 years: Financial markets trader
In the third video of his series, Abdulla explains why a clearing House is crucial to the smooth functioning of business on the exchange. He discusses the role of Clearing Houses as guarantors of contract performance, acting as central counterparty in every transaction administering all post-trade activity; including delivery and settlement.
In the third video of his series, Abdulla explains why a clearing House is crucial to the smooth functioning of business on the exchange. He discusses the role of Clearing Houses as guarantors of contract performance, acting as central counterparty in every transaction administering all post-trade activity; including delivery and settlement.
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5 mins 14 secs
Clearing Houses provide a crucial role in the functioning of derivatives (and stock) exchanges.
Key learning objectives:
Outline the purpose and role of Clearing Houses
Learn the tools that Clearing Houses deploy in order to ensure contractual obligations will be fulfilled
Understand the basic operation of the margining system
Understand what happens in the event of an Exchange Member defaulting on its obligations
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In the event of a default, the Clearing House will immediately close up all the positions of the defaulting member by undertaking offsetting trades in the market. This will crystallise the net losses incurred by the defaulting member. The Clearing House will then use the defaulting member’s margin funds or posted collateral to offset those losses.
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