Univ.-Prof. Dr. Gerhard Merk, Dipl.rer.pol., Dipl.rer.oec.Clearing is the post-trade process that prepares obligations for completion by verifying trades, calculating what each participant is responsible for, and reducing offsetting amounts where appropriate. In derivatives markets, it also involves routinely revaluing open contracts and updating the collateral or margin needed to support them before settlement occurs.
A bilateral net settlement system determines what each participating institution owes or is owed by another institution after offsetting their transactions over a specified period. Only the residual amount between the two institutions is then transferred, rather than the gross value of all underlying payments. Net obligations are determined independently for each pair of participants,… read more »
Bilateral netting is a contract-based process in which reciprocal payment duties between the same two participants are consolidated into a single balance. The participant with the larger total obligation pays the difference, while equal obligations cancel out. It may cover transactions under one or more agreements and is subject to applicable law.