Topic · Core Finance & Asset Classes
← All topicsMarket Institutions
40 articles · 7 checkpoints · 24 deeper reads · 9 reference notes
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A CCP steps into the middle of every cleared trade so that neither original party ever has to trust the other again, the mechanism that does it, novation, is what makes modern derivatives and repo markets survivable when a large member fails.
Index providers sell licences to a set of published rules, not to the securities themselves, a business model that turns "which stocks are in the S&P 500" into a recurring revenue stream and a source of real, tradeable market impact around every reconstitution.
Clicking buy is the easy part. Behind every trade is a chain of routing, matching, clearing and settlement that takes a verbal agreement to trade and turns it into an actual, legally final change of ownership.
A custodian is the institution that actually holds a fund's securities and cash, settles trades, collects income and keeps the official books, quiet infrastructure work that almost nobody outside operations ever thinks about until it fails.
A prime broker is the bank that lends a hedge fund cash and stock, holds its collateral, clears its trades away from a single executing broker, and in the process becomes one of the fund's largest single points of failure.
Different regulators have jurisdiction over different products and different geographies, a US equity option, a US futures contract and a UK-listed stock can each answer to a different regulator, and knowing which one matters the moment something goes wrong.
A central counterparty absorbs a defaulting member's losses through a strict, pre-agreed order of resources, and the CCP's own capital is deliberately placed in that queue so it shares the pain before its members do.
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