CSE Clear will act as a Central Counterparty (CCP) for all local equity transactions executed on the CSE. As a CCP, CSE Clear will guarantee the settlement of transactions by becoming the buyer to every seller and the seller to every buyer. Consequently, all local equity transactions, once executed, will be subject to novation prior to the clearing and settlement process.
This mechanism significantly reduces counterparty and systemic risks in equity transactions by guaranteeing trade completion, enhancing market stability, and streamlining the clearing and settlement processes.
Benefits of Central Counterparty
- A Central Counterparty (CCP) plays a pivotal role in maintaining the integrity of the financial system. By acting as an intermediary between trading parties, it significantly reduces the risk of default.
- Through the centralization of clearing processes, a CCP enhances market liquidity and transparency, enabling participants to execute trades more efficiently.
- During periods of market stress, a CCP strengthens confidence by ensuring that trades are settled securely. Its systems remain reliable and stable even under challenging conditions.
- CCP upholds regulatory compliance by adhering to established international standards, promoting trust and stability in financial markets.
- By guaranteeing trades, a CCP mitigates operational risks and prevents disruptions in the clearing and settlement process, safeguarding the smooth functioning of the market.