Clearing and Trading and Settlement

Abstract This chapter begins by introducing what clearing is, the value-added of central counterparty (CCP) clearing, and its advantages and potential concerns. It analyses the evolution of the derivatives market and the trading activity over the years before describing the settlement process and the settlement service providers. Derivatives markets allow local economic exposures to be shared globally, thus efficiently transferring risk. Since the global financial crisis (GFC), central clearing has been at the forefront of the financial regulatory agenda, which resulted to increasing transparency and reducing risks. Nevertheless, a few global financial centres have specialized and are now clearing the lion’s share of global trades. Concerns about the concentration of risk in third-country CCPs and foreign currency exposure has been an issue among EU policymakers and supervisors for the past two decades. The chapter then presents a long-term vision for the future of the European clearing market, taking financial stability, efficiency, and the development of Europe’s financial markets into account.