The following Financial Services guidance note provides comprehensive and up to date legal information covering:
BREXIT: As of exit day (31 January 2020) the UK is no longer an EU Member State. However, in accordance with the Withdrawal Agreement, the UK has entered an implementation period, during which it continues to be subject to EU law. This has an impact on this Practice Note. For guidance, see Practice Notes: Brexit—impact on finance transactions—Key issues for derivatives transactions , Brexit—impact on finance transactions—Derivatives and debt capital markets transactions—key SIs, Impact of Brexit: EMIR—quick guide and The impact of Brexit on the MiFID II regime.
Clearing is a process which eliminates the normal risk that a party to a derivatives transaction will default (counterparty risk).
The main parties involved in the clearing process are:
a financial institution known as a clearing house, and
other financial institutions, usually banks or brokers, which enter into a clearing agreement with the clearing house—these institutions are known as clearing members of the clearing house or simply clearing firms
In cleared transactions:
all transactions are entered into by clearing members, which may do this for their own accounts or for the accounts of their clients, and
the clearing house interposes itself between the clearing members who have entered into the transaction, becoming a party to every transaction—each party therefore is exposed to the risk
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