Bulletin – June 2012 Description for Figures June Quarter 2012 Bulletin article: Central Counterparty Interoperability
Figure 1: Central Clearing with and without Interoperability
The left-hand side diagram illustrates a trade being novated through a single CCP – after the trade occurs, the CCP transforms the original trade contract into two contracts, one between it and each participant; both participants must be members of the same CCP, as it is necessary to have continuity in the obligations that flow from one side of the trade to the other. The right-hand side diagram illustrates a trade being novated through a CCP link (the link permits the CCPs to hold trading obligations to each other) – after a trade occurs between participants of separate CCPs, the trade is novated into three contracts, between each participant and its CCP and between the two CCPs; trades that occur between participants of the same CCP take place as they would without the CCP link, i.e. as in the left-hand side diagram.
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Figure 2: Alternative Models of CCP Interoperability
The left-hand side diagram illustrates collateral flows in a ‘participant’ link arrangement. The right-hand side diagram illustrates collateral flows in a ‘peer-to-peer’ link arrangement.
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