Chapter 04 · Section 4.1
Clearing for Exchange Members
Some clearing members only clear their own trades (often called direct clearing members). Others also clear for other exchange members.
What advantage does a clearing member have representing other exchange members in the clearing process?
a) It gets a fee (called clearing fee) from the institution it clears for. This commission exceeds the clearing commission it has to pay the clearing house.
b) It gets margin deposits from the institution it clears for. These may be higher than the amount it has to deposit as margin with the clearing house for the non-clearing members' positions.
c) None of the above.
d) a and b
e) a & c
Clearing trades for another member means assuming a certain risk, for which a clearing member would want to be paid.
At the same time, reward on a per transaction basis is not proportional to the risk taken: the risk depends on the total position, not on the number of transactions.