On the role of a central counterparty in efficient functioning of the equity market infrastructure

Abstract

The article examines the role of a central counterparty as a main element of a clearing system in the efficient and smooth functioning of the organized equity market infrastructure. The author analyses the function of the central counterparty, namely credit risk management when equity market participants fail to perform their obligation, and taking measures to cover losses caused by participants’ infringement of their obligations. The author points out that the mandatory participation of the central counterparty in obligations admitted to clearing ensures sufficient protection of equity market participants, which is more effective in comparison with the granting of security in civil obligations in case of their infringement. The author makes a conclusion that the legal status the central counterparty is not sufficiently regulated by law applicable to the equity market, and the procedure of executing the central counterparty’s main function for the benefit of entire financial market is not duly revealed in the new Law “On Clearing and Clearing Activities”.

Keywords:

Central counterparty, equity market infrastructure, clearing, financial instrument, credit risk, clearing activities, restitution, invalid transaction