| The settlement clearing generally starts with the | | | | concentration of considerable risk within CCPs. |
| capturing of trade data and to ensure that,if it is not | | | | Therefore, commissions were set up to determine |
| already performed by an organised market the | | | | that CCPs should be subject to regulatory oversight |
| specified terms and conditions of the trade records | | | | so that proper risk management methods are |
| of buyers and sellers match like a mirror image. Even | | | | established and implemented and also so that the |
| though it sounds pretty simple, some of the most | | | | clearing system gets properly structured. |
| complex settlement clearing processes have to have | | | | If the securities are accounted for electronically as |
| matching of traders. Few of the clearing organizations | | | | well as if there are few securities depositories, the |
| get exactly matched trade information from the | | | | settlement clearing of securities can be highly |
| exchanges supported by them. Generally the trade | | | | automated and that account for the ownership of |
| match function acts as the gateway to a clearing | | | | such "book-entry" securities. The clearing has many a |
| system of CCO therefore it is usually called as the | | | | significant network exyernalities associated with it. It |
| settlement clearing front end. | | | | is efficient for market agents to clear and hold their |
| In most countries, settlement clearing and derivatives | | | | securities where other market agents clear and hold |
| products means substituting the CCP for the original | | | | their securities. |
| counterparties related to future performance of all | | | | It is recommended by the International rules that the |
| remaining obligations, mostly but not exclusively | | | | relocation of the possession of a security is |
| financial. A CCP employs a prudential risk mangement | | | | provisional on the immediate relocate of adequate |
| system, in order to support its guarantee and that | | | | finances to reimburse for the security totally. The |
| includes the financial resources to support its trade | | | | settlement clearing process ends with a change in the |
| guarantee. While there are many public and private | | | | title to the security, hence beginning the custody |
| benefits to be found in clearing arrangements, there | | | | process. |
| might also be public policy implications due to the | | | | |