STSM125020 - Financial markets: central counterparties: clearing houses
After the execution of buy and sell orders, transactions are processed in preparation for the transfer. Clearing refers to the management (risk management, transaction monitoring, and netting) of a transaction after the matching of a buy and sale trade.
Two types of firms can provide clearing services:
- A central counterparty or CCP (see STSM125010)
- A recognised clearing house
UK Recognised Clearing Houses
A UK Recognised Clearing House (recognised clearing house is defined in section 285 of the Financial Markets and Services Act 2000 (FSMA)) is a clearing house that is incorporated in the UK, intends to provide clearing services as something other than a CCP, and is recognised by the Bank of England (BoE) in accordance with sections 288 (A1)(1A) and 290(1)(c) of FSMA.
For the purposes of recognition orders under FSMA, an application can be made under section 288(1A) of FSMA for a recognition order declaring the applicant to be a recognised clearing house which is not a recognised CCP under section 290(1)(c) of FSMA.
Overseas Clearing Houses
An Overseas Recognised Clearing House is a clearing house that is established outside the UK, in relation to which a recognition order made under section 292 of FSMA is in force. If a firm applied to the BoE for recognised overseas clearing house status and was a CCP, the application would be rejected.