Clearing Models

NASDAQ OMX Derivatives Markets offers two different clearing models:

• Member clearing
• End-customer clearing

The demand for traditional member clearing has increased as the markets have become more internationalized. To allow full member flexibility you can use the two different clearing models in parallel if desired.

NASDAQ OMX can offer various account setups for each membership and clearing model, although some accounts will be mandatory. NASDAQ OMX can also customize setups to meet the needs of the members provided they comply with the Rules and Regulations of NASDAQ OMX Derivatives Markets and are viable within the system.

Member clearing

The contractual agreement in the member clearing model is between you as a derivatives clearing member and NASDAQ OMX Derivatives Markets in contrast with the end-customer clearing model in which each end-customer has an agreement with NASDAQ OMX Derivatives Markets. This implies that there is counterparty risk between the end-customer vs. member and vice versa when using this model. NASDAQ OMX Derivatives Markets still assumes counterparty risk between the buyer and the seller but where member clearing is used the clearing house assumes the counterparty risk with the member and not the end-customer. Thus, the end-customer has counterparty risk with the member.

As a service to members with the member clearing model, NASDAQ OMX Derivatives Markets offers the opportunity to connect sub-accounts to a client omnibus account. The sub-account holds the position and the member can trade directly on that account. Events occurring on the sub-account will be reflected in reports on the sub-account level. All reports are for informational purpose only since the contractual arrangements are on clearinghouse/member level.

End-customer clearing

In the end-customer clearing model there is a contractual relationship between NASDAQ OMX Derivatives Markets and the end-customer. The relationship limits the risk end customers have on the member. The contractual administration is handled through an external unit (Clearing Control CC AB, situated in Stockholm, Sweden). This unit ensures that the end-customers remain anonymous to us while maintaining a contractual agreement between end-customer, member and NASDAQ OMX Derivatives Markets.

The end-customer has limited counterparty risk in relationship to the member due to the direct relationship between the end-customer and the clearing organization. In the end-customer clearing set-up, NASDAQ OMX Derivatives Markets not only replaces the counterparty risk between members but also replaces the credit risk between the member and the end-customer. This is achieved by the direct contractual agreement between the end-customers and the clearinghouse. As a consequence each end-customer holds an individual account where risk is calculated. To uphold counterparty protection for each end-customer it is not possible to net or set off position between end-customer accounts. In the event of member default the customer’s positions will be separated from the member’s positions and we will try to find another member to take over the end customer. The end-customer account allows us to facilitate detailed post trade information, e.g. end-customer specific transaction information, margin calculation and settlement flows per individual customer account.

Summary

The two available clearing models can be used in parallel or separately but there are important differences between them. To distinguish between end-customer clearing and member clearing the accounts where a position is located is defined differently in the rules and regulations. The choice of clearing structure has an impact on how positions are handled in day to day operation, how margins are handled and how a default situation is administrated.