A clearing corporation / clearing house needed?

As we had often come back to discussing economic benefits/impact of sports I thought it was about time for an economic discussion forum.
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Melinda Wenni
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A clearing corporation / clearing house needed?

Post by Melinda Wenni »

As in the case of physical securities, the Clearing Corporation /Clearing House (CC/CH) now facilitates the clearing and settlement of trades taking place in the forex market. After the completion of the trading period, the CC/CH calculates the net funds and the obligation of each clearing member and the same is intimated to the clearing member. The clearing member then delivers to the CC/CH the net funds payable through the clearing bank and the net fund position is intimated to the regulatory authority.

Thus, in order to facilitate the settlement of trades executed in the depository segment at the forex market, the CC/CH of the respective exchange joins the regulatory authority as a depository participant. The clearing members trading in foreign currencies must have a clearing member account with one of the depository participants.

Trade in forex is now highly regulated. Most often, the genuine players are the most affected due to the foul play by the unscrupulous operators. However, proper regulations and the stringent regulatory mechanism have its own inherent advantages. While an unregulated market would have been a free for all, a regulated market has enough checks and controls. Traders with dubious distinctions cannot get away with ease.

Most often in the forex market, the market forces have a major say in the value quoted for a particular currency. The value of a currency may go up or come down according to the wide variations in the international market. However, a clearing corporation/clearing house can certainly do much for the various stakeholders.

If investor confidence in the forex market is to continue, then the clearing corporation must have the guts to step in to prevent a free fall in the market. Often, the first time investors have stepped backward mainly due to the unpredictability in the forex market. For such people, it is better to wait before signing up for live trade. During this waiting period, they must get in touch with the fine nuances of the highly volatile foreign currency market.
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