Markets · 6 pages · 12 min

Why your counterparty is often the clearinghouse

After novation, performance is owed by the clearinghouse, not by the firm on the original other side.

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From the opening

After a cleared trade is novated, the performance you are owed runs to the clearinghouse, not to the firm that originally took the other side of the print. Your counterparty is then the clearinghouse, which is why that firm's later default need not become a default to you. The opening covers novation replaces the other side, the clearinghouse owes performance, and a broker may stand in between.

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Inside

Novation replaces the other side
The clearinghouse owes performance
A broker may stand in between
Uncleared trades keep the dealer
Where the idea stops applying
A distinction worth keeping

Sources

Novation to a central counterparty
Clearing member as intermediary

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Why your counterparty is often the clearinghouse

From the opening

Inside

Sources

Also on the desk