due to the clearing member and due to the clearing members
client.
The transaction will need to be posted to the clearing house
account with the contra entry being the client account or trading
book if it was in the principal/house account.
Effect the client settlement instructions
The transaction will be posted to the relevant client account or trading
book. If it is a client trade it will be booked either to their omnibus
account or to a designated account. In the latter case the client will
need to advise the broker of which account to book the trade to. This
could be done via the sales desk or via the operations team or may be
notified via both routes.
The client may maintain a monetary balance in their account(s), in
which case the transaction will update the balance. Confirmation of
the transaction and the revised open option position and cash bal-
ance on the account will be advised to the client.
There are several ways that this could take place.
1. Client access to accounts
2. By email
3. By fax
4. By telephone
5. Hard-copy report.
In each case the important thing is to establish that the client is
aware of the settlement requirement and the impact on their open
position and cash position. The process is also a fundamental control
acting as an affirmation or acceptance by the client of the transac-
tion and associated settlement. An audit trail for the trade is also
established with the transaction showing in the clearing account and
backed off in the client account.
Clearing account Client account
Buy 10 FTSE 100 Index Buy 10 FTSE 100 Index
Futures @ 4500 Futures @ 4500
The settlement amount of £500 as a result of the MTM process is
due to the clearing member and is therefore payable to the client. It
is important to remember that the firm that has the clearing
80 Clearing and settlement of derivatives
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