Clearing and settlement of transactions in securities

Clearing transactions in securities

Clearing houses are the key providers of clearing infrastructure systems and services.

A clearing house eliminates the risk that a party who has entered into a contract for the sale and purchase of securities will fail to complete the transaction. It does this by interposing itself between the parties, becoming the buyer to the seller and the seller to the buyer—each party, therefore, is exposed to the risk of the clearing house, but not to the risk of the other party. Investors trading through a clearing house therefore do not need to be concerned with the identity or credit quality of their counterparties, but only with the credit quality of the clearing house. Clearing houses provide this service in return for a fee and against the provision of collateral or margin by both parties to a transaction.

Assimilated Regulation (EU) 648/2012 (UK EMIR) provides for the authorisation and regulation of clearing houses as central counterparties