1.Advantages
o Multilateral netting: Contracts traded between different counterparties but cleared through a CCP can be netted. This increases the flexibility to enter new transactions and terminate existing one and may reduce margin costs.
o Credit risk mitigation: A CCP reduces the need for credit risk assessment…
o Legal and operational efficiency: The margining, netting and settlement…
o Liquidity: A CCP will improve market liquidity by allowing market participants…
o Transparency: A CCP can monitor clearing members’ aggregate activity across…
o Transparency of prices and fees: For competition authorities, the transparency through discrepancy of prices and fees for trading, clearing and settlement is crucial so that parties are able to make informed decisions when selecting a system. Antitrust behavior concerning prices and fees is too important for the smooth functioning of the clearing and settlement industry, because CCPs have features of natural monopolies with network advantages. Thus, an ideal CCP legislation should expressly stipulate that CCPs’ practice should abide by competition rules and that CCP operators must be in a position
o Portability: Clients can be protected from clearing member failure and are…
o Default management: A well-managed CCP means that transactions are more…
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