What is the role of the clearing house/ Corporation?
The Clearing House / Corporation matches the transactions, reconciles sales & purchases and does daily settlements. It is also responsible for risk management of its members and does inspection and surveillance, besides collection of margins, capital etc. It also monitors the net-worth requirements of the members.The other role of the Clearing House / Corporation is to ensure performance of every contract. This can be done in two ways. One way is that Clearing house / Corporation imposes itself between the two counterparties thereby replacing the original contract (say between A & B) by two new contracts (between A and Clearing House /Corporation and between B and Clearing House / Corporation) thereby itself becoming counterparty to every trade. This is called full Novation. The other way is to guarantees performance of all the contracts done on the exchange.
