One of the principal functions of a clearing organization is to guarantee that all contracts traded will be honoured. Clearing therefore serves to create a more efficient market, since all the players involved need not include the original counterparty risk in the price calculation. OMX Derivatives Markets offers an unique clearing concept and a range of clearing services for both standardised and tailor-made products. All derivatives are cleared in NASDAQ OMX’s clearing system SECUR™, an integrated clearing and back-office system.
Clearing refers to the administrative process initiated when an agreement to buy or sell a derivatives instrument is made through the exchange. Generally, the clearing process can be divided into four parts:
Matching
Central counterparty
Cash settlement
Delivery
Matching means that the parties agree on the conditions of the transaction, i.e. what has been bought or sold, price, quantity, etc. ‘Central counterparty clearing’ is when the clearing organization becomes the legal counterparty in a transaction. Cash settlement refers to settlement of premiums, fees, mark-to-market and other cash settlements, and delivery of the underlying instrument or cash settlement occurs after expiration or premature exercise.
As central counterparty, OMX Derivatives Markets:
Participates as counterparty in every transaction, which is commonly referred to as a ‘counterparty undertaking’.
Monitors the market and market participants.
Provides structured procedures, as well as resources for dispute resolution. Buyers and sellers are not forced to take legal action against one another, as the clearing organization offers independent legal enforcement of contracts.
Reduces the number of payments due to netting and handles all payments not relating to deliveries on behalf of members.
Provides possibilities to net deliveries of underlying stocks on a member level compared with netting of payments, which are always netted.
Provides secure and standardized transaction processing.
Enables a clearing member to replace the counterparty risk between different market participants with the counterparty risk towards the clearing organization – even for instruments traded outside the exchange.
