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Settlement (A code of conduct was introduced by the EU in November 2007 to…
Settlement
A code of conduct was introduced by the EU in November 2007 to which all European exchanges, clearing and settlement houses have to keep. This is based on
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TARGET2
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TARGET2-Securities
New European securities settlement platform to replace domestic and cross border settlement through the harmonisation of post-trade services and standards contributing to stronger financial integration and a true European single market
The aims of T2S are to
Cut settlement costs to one of lowest levels in the world. It will bring down cross border settlement fees by exploiting economies of scale using a single IT settlement platform, a single set of standards and a single operational framework
Be a catalyst for harmonisation across Europe by creating a single, sound and competitive financial market in Europe
Have a positive impact on financial stability which given recent financial turmoil is crucial for the future of markets. TS2 will settle exclusively in central bank money and offer the most advanced standards of resilience, availability, business continuity and security. It will enable banks to optimise their liquidity and collateral management, thereby providing greater diversification and sharing of risk
Foster competition, open new business opportunities and benefit European investors
LCH.Clearnet
Clears a range of asset classes including equities, exchange traded derivatives interest rate swaps bonds and repos for major international exchanges and MTDs
Positioned in the middle of a trade accepting the counterparty risk when two members of an exchange trade
Becomes the legal counterparty to the trade and if one of the parties to the trade default, LCH.Clearnet steps in
Eurex Clearing
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Provides full clearing and risk management services for leading exchanges and marketplaces, wholesale trading, post trade management, risk control, delivery management and reporting
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SIX x-clear AG
Clears trades for SIX Swiss Exchanges and the LSE by acting as an alternative CCP offering clearing and risk management services in the cash equity and bond markets
Once a purchase or sale has been made, then the deal has to be settled, the purchaser has to pay for the equity and the seller has to provide good delivery
Seller must be able to deliver their stock within the required time limits in order to receive csh in settlement form the buyer otherwise the seller will be liable to charges for late delivery
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Clearing and settlement require good administration by the exchange or its approved service providers
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Vital to the functioning of a maker as it is the final stage in a transaction with transfer of ownership of the secuiirt to the purchaser following by registration in the shareholders book of members
Independent clearing houses for multilateral platforms have become a necessity in order to handle the volume of business created by computerised trading
The 2007 banking crisis emphasised the need for transparency, effective clearing and settlement of trades, with counterparties able to assess risk and to have sufficient assets to cover their trading positions
Post MiFID moves have demanded that clearing be competitive, transparent and cross border
Clearing houses assume some of the risk in a trade by acting as the counterparty between a buyer and seller in a transaction
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In the USA most securities clearing is undertaken by the Depository Trust and Clearing Corporation known as Fedwire. It was founded to enable buyers and sellers of securities in the USA to clear and settle their transactions