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This paper aims to apply blockchains (BCs) for trade clearing and settlement in a realistic clearinghouse. The purpose is to demonstrate the feasibility and scalability of this approach.

The study uses account BCs and trading BCs as building blocks for trade clearing and settlement. Careful design is made to ensure that this approach is feasible and scalable.

A design has been proposed that can process hundreds of thousands of trades for a clearinghouse and it addresses performance, privacy and scalability of realistic trade clearing and settlement. The design has been implemented and experimented in a clearinghouse for over two months and processes over 3B real transactions from an exchange. The first month was to experiment with the system with historical data, the second month was to experiment with real-time data during market trading hours. The system performed as designed and intended.

This is the first large research paper that applied BCs for clearing in the world. The authors applied the system to a clearinghouse and processed over 3 billion transactions, equivalent to 13 years of London Stock Exchange transaction volume, demonstrating that BCs can handle a large number of transactions.

The design can be duplicated to many clearinghouses in the world, and this also paves the way BCs can be used in large financial institutions.

An implication is that other trading firms, clearinghouses and banks can apply the same technology for trade clearing, ushering the way BCs can be used in institutions. As clearing is a core function in business transactions, this has significant implications. The design can be discussed and improved in various communities.

As this is the first application of BCs to large clearinghouses that uses unique BC designs. This has significant value. Many studies have been performed but few have been reported in the scientific community. The system has been implemented, experimented and demonstrated in public for months.

The purpose of this paper is to explain the rule recently published by the US Commodity Futures Trading Commission that establishes a timetable for the mandatory clearing of interest rate and credit default swaps through a clearinghouse.

The paper discusses the structure of cleared trades in swaps, the classes of interest rate and credit default swaps that are subject to mandatory clearing under the CFTC's new rule and the affirmative and negative specifications for each class, the phased approach adopted by the CFTC for the mandatory clearing compliance schedule, and the end‐user and inter‐affiliate exemptions from the mandatory clearing requirement.

“Centralized clearing,” a process in which bilaterally negotiated trades of derivatives have to be given up to a centralized clearinghouse, is a cornerstone of the new global regulatory system for derivatives. Its proponents argue that centralized clearing will help to mitigate systemic risk by helping counterparties identify and net positions. The paper outlines the clearing rules in the USA for interest rate and credit default swaps.

The paper provides expert guidance from experienced financial services lawyers.

In 2022, US financial regulators proposed to mandate a single central clearing mechanism for treasury bonds and repo transactions to stabilize financial markets. The systemic risks inherent in repo markets were first highlighted by the global financial crisis and, as a response, global financial authorities such as the Financial Stability Board (FSB) and Bank for International Settlements (BIS) have advocated for the introduction of a central counterparty (CCP). This study examines the structural characteristics of Korean repo markets and proposes the introduction of CCPs as a way to mitigate systemic risk. To this end, the author analyzes the structural differences between US and European repo markets and estimates the potential consequences of introducing CCP clearing in local repo markets. In general, CCPs offer two benefits: they can reduce required capital through netting in multilateral transactions, and they can mitigate the effects of risk transfer by isolating counterparty risk during periods of turbulence. In Korea, the latter effect is expected to play a pivotal role in mitigating potential risks.

The purpose of this paper is to answer a specific research question: How have EU and US regulators translated the idea of central clearing into law?

A meticulous legal research is carried out. First, the pre‐crisis regulatory regime for credit default swap (CDS) is reviewed, from a securities law angle as well as from a comparative Euro‐American perspective. Next, the regulatory processes leading to the adoption of the central clearing regulations are discussed. Thereafter, a material comparative analysis is made of the provisions related to central clearing in the EU and US regulatory initiatives. Finally, the paper is concluded with an evaluation of both legislations in the light of all previous analyses.

The research first shows that central clearing regulations rely on a series of presumptions, both concerning the gravity of counterparty risk threats and the necessity of central clearing. Additionally, the EU and US clearing regulations are similar with regard to the broad innovations they introduce, i.e. the mandatory central clearing of a variety of over‐the‐counter derivatives and counterparty risk management requirements for central clearing institutions and for non‐cleared swaps. However, the specific content of the provisions often differs. Furthermore, both legislations are limited to enouncing broad principles. This is also the case for the crucial provisions related to counterparty risk management. Therefore, these provisions in se do not guarantee the proper regulation of counterparty risk management practices. Consequently, much is to be expected from the implementing measures adopted by regulatory institutions.

The paper provides an overview of those provisions in the European and US regulations that specifically concern central clearing for CDS. It is one of the first papers which does this in a very well‐structured and clearly written manner. Also it is one of the first to provide a clear comparison between the provisions in the EU and the US regulations.

The current security trade settlement life cycle presents several inefficiencies derived from intermediaries involved in the transaction between buyers and sellers. This chapter examines distributed ledger technology (DLT), the underlying technology of all blockchain applications, including trade settlements. It also reviews the implications of using blockchain in trade settlements for cryptoassets. Emerging blockchain technology provides investors, exchanges, regulators, and countless potential intermediaries with the most up-to-date technology with the highest efficiency, transparency, credibility, and automation enabled by smart contracts. Smart contracts allow an ecosystem to manage the process of trade settlements starting from execution to clearing and then settlement. These contracts reduce reconciliation and recordkeeping costs and streamline repetitive processes present in today’s trade settlement system. The chapter highlights the benefits of implementing DLT in financial markets globally in all trading aspects, including cryptoassets.

Systemic risk propagated through over‐the‐counter (OTC) derivatives can best be managed by a public‐private central counterparty clearing house. The purpose of this paper is to outline the market microstructure necessary for such a clearing house.

The paper proposes using an request for quote platform with an active permissioning system that uses analytic approximations based on Monte Carlo simulation to estimate default risk and a two‐part pricing scheme to efficiently price that risk.

It is found that comprehensive clearing for complex and standardized derivatives is feasible using the clearing framework.

This research is limited by the authors' ability to give empirical examples. The paper gives a short example with data, but given the constraints on length, cannot go into more detail.

This comprehensive clearing structure, in contrast to current proposed government regulations, will not drive out the “good” with the “bad” OTC derivative instruments.

This is the only paper the authors are aware of that outlines a detailed framework for clearing all OTC derivatives.

A spate of micro‐cap stock fraud cases in the 1990s has led the SEC to focus on the conduct of clearing brokers whose introducing firms acted as underwriters or market makers of new small‐cap issues. This article outlines the SEC's regulatory and enforcement guidelines regarding the clearing brokers, and shows that the agency's position encourages the continued growth of clearing arrangements while giving it flexibility to sanction clearing firms in appropriate cases.

The purpose of this paper is to assess trading strategies adopted by each large trader group and examine their effects on the volatility in the interest rate futures markets.

The Grinblatt et al.'s (1995) measure of momentum strategy is used to estimate the degree momentum and contrarian strategies. Then, regression analysis is used to determine the effects of trading strategies on volatility.

Up until 2005, the trades by non-clearing member firms in the futures market were separated from institutional traders providing us the opportunity to study trading strategies adopted by large distinct trading groups and its effects on volatility in the futures markets. It is found that individual traders use momentum strategy, whereas market makers and institutional traders use contrarian strategy. Momentum strategy adopted by individual traders increases volatility whereas contrarian strategy dampens volatility. Moreover, it is found that institutional traders engage more actively in contrarian trading when individual traders cause excessive volatility. The two distinct trading groups were separately tracked prior to 2005 giving us a unique window to determine the effect of the traders that conduct momentum trading as opposed to the ones that are contrarian traders. After the reclassification, the institutional trading group exhibited weaker contrarian strategy which can be attributed to the inclusion of non-clearing firm traders.

This study documents the first empirical evidence that shows off-exchange futures trader group is not composed of only pure noise makers, but there are short-term forecasters in its group. The authors also show a unique finding that noises caused by off-exchange group is from momentum strategy that they use, whereas contrarian strategy is used by institutional trader lower volatility.

The purpose of this paper is to demonstrate that certain rules, implemented as a result of the Dodd-Frank Act (DFA) of 2010, should be harmonized between economically equivalent products in swap and futures markets to prevent regulatory arbitrage.

The paper focuses on rules surrounding margin requirements and block size thresholds. As such, a background of clearing and exchange systems is presented to familiarize the reader with the risk management objectives of the regulation. Viewpoints of several leading commentators taken from a Commodity Futures Trading Commission roundtable and comment letters are then analysed to support the argument that margin requirements and block size thresholds should be the same for similar financial products.

Based on the review and analysis of several commentators and industry participants, harmonization of rules for swaps and economically equivalent futures contract should be achieved to prevent regulatory arbitrage.

To the best of the author's knowledge, there are no articles that address the swap futurization debate in this detail. This paper will be of interest to readers who would like to learn more about how the DFA has impacted the derivatives market leading to the recent trend of swap “futurization”. It is also ideal for those who are unfamiliar with current clearing and exchange systems, as it presents background detail of this framework to supplement the debate on swap rules.