Central Counterparty Clearing 1

Central Counterparty Clearing

Central Counterparty Clearing (CCC) is a process by which financial transactions in equities are cleared by a
single (i.e., "central") counterparty. Please see Clearing (finance) for general information about clearing. This article
contains specifics about the process as it applies to non-centrally cleared equity markets in the U.S.
In the United States, there is a separation between the Clearing Broker and the Depository. This means that there will
be multiple clearing brokers that have to reconcile shares and money against other clearing brokers. It also means
that the clearing brokers bear the risk of default on the leg of the transaction that they are servicing. Contrast this
with the options market with its Options Clearing Corporation, which is a true central clearing counterparty and
which bears all default risk (by distributing it evenly among its members).
To better understand Central Counterparty Clearing (CCC), a relatively new process, in the U.S. equity markets, first
consider the lifecycle of a trade before Central Counterparty Clearing:

1. Orders are routed from the investment firms (one is a buyer, the other is a seller) to their respective Executing
Brokers.
2. The Executing Brokers send the orders to the appropriate Marketplace for the security being traded. The
Marketplaces respond with executions ("fills").
3. The Executing Brokers send the fills to the Clearing Broker that was designated by the investment firms. Many
Executing Brokers are themselves Clearing Brokers, a term which is called "self-clearing".
4. The Marketplace(s) and the Clearing Brokers compare their shares/money to make sure that they match. This is
referred to as "Street-Side matching".
5. The Investment Managers inform their respective Custodians what they should expect to receive/deliver from the
Clearing Brokers, and the Custodians perform this comparison. This is referred to as "Customer-Side matching".
This occurs the day of the trade (T+0).
On Settlement Date (which is usually up to 3 days after Trade Date, the date when the actual trade occurred), the
Clearing Brokers will deliver/receive the match amount of shares/money to settle the trade with both Investment
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firms.

External links
Firms providing Central Counterparty Clearing (may be incomplete):
• ISJ (Investor Services Journal magazine and dot tv information service) [1]
• Electronic Securities Processing (ESP) [2]
• Firefly [3]
• UNX [4]
Other links:
• Independent report by the Tabb Group, which they charge for [5]
• [6] Good, Bad, or Inevitable? A whitepaper on the Introduction of CCP's in Securities Lending (PDF)

References
[1] http:/ / www. isj. tv
[2] http:/ / www. fastesp. com
[3] http:/ / www. firefly. com
[4] http:/ / www. unx. com
[5] http:/ / tabbgroup. com/ PublicationDetail. aspx?PublicationID=271
[6] http:/ / www. quadriserv. com/ newsdocs/ 20100913. pdf
Article Sources and Contributors 3

Article Sources and Contributors

Central Counterparty Clearing  Source: http://en.wikipedia.org/w/index.php?oldid=400559390  Contributors: Beland, Cerebellum, Cmcg1893, Dcarioca, Eastlaw, Frank1101, Galoubet,
Rjwilmsi, Wsgeek1234

Image Sources, Licenses and Contributors

Image:TradeLifecycle.jpg  Source: http://en.wikipedia.org/w/index.php?title=File:TradeLifecycle.jpg  License: Public Domain  Contributors: Wsgeek1234

License
Creative Commons Attribution-Share Alike 3.0 Unported
http:/ / creativecommons. org/ licenses/ by-sa/ 3. 0/