The Role of Exchanges, Clearing Houses and Brokers
Lindsey Matthews
30 years: Risk management & derivatives trading
To facilitate the flow of capital within the financial markets there are participants that act as the plumbing of the system. In this video, Lindsey outlines three of those market participants, including exchanges, clearing houses and brokers.
To facilitate the flow of capital within the financial markets there are participants that act as the plumbing of the system. In this video, Lindsey outlines three of those market participants, including exchanges, clearing houses and brokers.
The Role of Exchanges, Clearing Houses and Brokers
3 mins 14 secs
To facilitate the flow of capital throughout the financial markets, there are a set of other market participants such as exchanges, brokers and clearing houses. Exchanges are the venues where transactions take place, clearing houses step in between the parties to a transaction and each party settles with the clearing house, and brokers will execute transactions on behalf of clients and also bring parties together in the OTC markets.
Key learning objectives:
Outline the other vital market participants that ensure a smooth flow of capital
What does an exchange do?
Exchanges are the venues where transactions take place, an example are the stock exchanges around the world such as the London Stock Exchange and the New York Stock Exchange. There are also derivatives exchanges as well as commodities exchanges to name a few. The rise of electronic trading has led to a proliferation of exchanges or trading venues and there has been much consolidation of these players, with names changing and groups of exchanges being formed.
What do clearing houses do?
To limit settlement risk, in most trades (not all), clearing houses will step in between the parties to a transaction and each party settles with the clearing house rather than each other.
What do brokers do?
Stock brokers and derivatives brokers will execute transactions on exchanges on behalf of clients. Brokers in the OTC markets bring parties together to transact, for example in FX forwards or in interest rate swaps.
Lindsey Matthews
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