Clearing House
Candlefocus EditorThe role of the clearing house is to reduce default risk in futures trading, so that the buyer and seller can trust that the transaction will be completed the way it is agreed upon. The clearing house takes on this responsibility by imposing margin requirements, so that the buyer has some assurance that the seller is reliable and will not be exposed to a large risk in case of default.
Essentially, the clearing house provides a kind of insurance for both parties in the transaction. They also help promote liquidity in the financial market, since they guarantee some level of security and reliability in the transactions.
The clearing house is also responsible for performing the necessary data processing to ensure accuracy in the completion of the transaction. They also make sure that both sides of the transaction obey the rules governing the market. The clearing house also serves as a crucial part of the settlement process, in which the buyer and seller close out the transaction.
A clearing house has a variety of tasks, all of which are essential to maintaining balance and stability in the financial market. They ensure that both sides of the transaction follow the rules, provide a form of insurance that reduces default risk, and act as a crucial link in the settlement process. Without this important intermediary element, financial markets would be far less secure.