Central counterparties

Abstract icon CCPs are financial units that act as intermediaries between buyers and sellers of securities to ensure the execution of the transactions. All large cap equities at Nasdaq OMX Copenhagen are cleared via EuroCCP which is a Dutch CCP.

The parties to a securities transaction risk incurring losses if the transaction is not executed because the counterparty does not meet its obligations. In an equity transaction, this is the case if, say, the seller does not deliver the equities and their value has risen. In that case the buyer must buy the equities elsewhere at a higher price.

A CCP (central counterparty) is a unit that acts as intermediary between the buyer and the seller in a securities transaction. Put simply, it becomes buyer for the seller and seller for the buyer, guaranteeing settlement of the transaction for both parties. In other words, the CCP also takes over the risk from market participants. However, the CCP can reduce the overall risk by offsetting participants' opposite obligations, i.e. multilateral netting. In addition, CCPs have various instruments for covering any losses. For example, participants are required to pledge collateral.

One of the conclusions in the wake of the financial crisis was that more expedient clearing of derivatives could contribute to preventing similar crises. So in September 2009 the G20 countries set as a target that all standardised OTC derivatives should be cleared via a CCP. To follow up this target, the EU's EMIR (European Market Infrastructure Regulation) was adopted in 2012. The EMIR lays down a number of provisions relating to central clearing, including oversight of CCPs. In future this will take place via "EMIR colleges" with participation of relevant authorities from the member states in which the CCP operates.

EuroCCP is a Dutch CCP that clears equities transactions, including all large cap equity transactions at Nasdaq OMX Copenhagen. Danmarks Nationalbank participates in the oversight of EuroCCP via an EMIR college headed by the Dutch central bank (DNB) and the Netherlands Authority for the Financial Markets (AFM).

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