Clearing Services

Clearing Organization

The main functions of the clearing organization are assumption of obligations from participants, cross-market netting, settlement instruction, and settlement guarantee.

Assumption of obligations

When trading is effected, sellers have the obligation of delivering securities and the right of receiving cash, and buyers have the obligation of paying cash and the right of receiving securities. The clearing organization assumes these obligations and acquires these rights as a central counter party (CCP) between sellers and buyers.

As a result of this assumption of obligations, the counter party for settlement is changed from the original trading counter party to the clearing organization. Therefore all participants can trade without worrying about the credit risk of the trading counter party. Thus, clearing operations become more efficient.

Netting

The clearing organization offsets the selling and buying amounts of securities and cash to be settled on the same day for mitigation of settlement volume.

Securities are netted by issue and cash is netted on the basis of total amount of payment and receipt.

Settlement instructions

The clearing organization determines the settlement amount, notifies that amount to each clearing participant , and then notifies the settlement organizations so they may execute settlement. Depending on settlement method, there may be a case that clearing participant instructs it to the settlement organization in accordance with notification from clearing organization.

Settlement guarantee

Since the clearing organization, as a CCP, assumes the obligations and acquires the rights of settlement, it has to finalize settlement between participants even if a participant fails in settlement. This system enables every market participants to trade securely.

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