What is clearing?
What is clearing?

The following Banking & Finance guidance note provides comprehensive and up to date legal information covering:

  • What is clearing?
  • What is clearing?
  • Why are derivatives cleared?
  • What types of derivatives are cleared?
  • Suspension of the clearing obligation
  • Who is required to clear?
  • Exclusions from the clearing requirement
  • How are derivatives cleared?
  • Reporting clearing requirements
  • What are the benefits and risks of centrally clearing derivatives?
  • more

BREXIT: As of 31 January 2020, the UK is no longer an EU Member State, but has entered an implementation period during which it continues to be treated by the EU as a Member State for many purposes. As a third country, the UK can no longer participate in the EU’s political institutions, agencies, offices, bodies and governance structures (except to the limited extent agreed), but the UK must continue to adhere to its obligations under EU law (including EU treaties, legislation, principles and international agreements) and submit to the continuing jurisdiction of the Court of Justice of the European Union in accordance with the transitional arrangements in Part 4 of the Withdrawal Agreement. For further reading, see: Brexit—introduction to the Withdrawal Agreement. This has an impact on this Practice Note. For guidance, see Practice Note: Brexit—impact on finance transactions—Key issues for derivatives transactions and Brexit—impact on finance transactions—Derivatives and debt capital markets transactions—key SIs.

What is clearing?

When a transaction is centrally cleared, that transaction is 'given up' or 'novated' to a central counterparty (CCP). This means that the two parties entering into the derivative transaction do not have credit exposure to each other as they would have in a bilateral transaction. Instead, the CCP takes margin in exchange for assuming the credit risk of each of the