Regulation of the OTC derivatives Market - Clearing in OTC markets

5 important questions on Regulation of the OTC derivatives Market - Clearing in OTC markets

What are the two different forms of clearing?

Transactions can be cleared Bilateral, meaning by all market participants, of could be cleared by a central counter party (cCP)


What two froms of markets do we know?

Over the counter (OTC) markets and Exchange Traded (ET) markets

What happened with the OTC market since the credit crisis?

The OTC market was largely unregulated before the credit crisis, two market participants could enter any trade they liked, agree on different conditions and there were no obligations to disclose any details of the trade to anyone.
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What does the new regulation entails?

Standard OTC transactions must now be cleared through a CCP. Nonstandard OTC transactions can still be cleared bilaterally, but with higher capital charges.

What is the role of the CCP?

The CCP acts as an intermediary and enters into offsetting transactions with the two companies

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