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Erik Hoel
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Will The Bitcoin Bubble Pop Or Will It Envelop Us All?

Guest contributor Erik Hoel asks the question whether the worst is over for bitcoin holders, or still yet to come, what is yet to come? And why.

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In your opinion, what is the biggest hurdle facing the blockchain?

Cost of implementation

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Too many systems available

23%

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Nobody else is using it

23%

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February 22, 2010

Cover Sidebar: OTC Derivative Clearing, a Different Business

Clearing, which is the process covering everything from execution to settlement, is usually straightforward when it is simply cash for a security transaction. But that's not the case in over-the-counter derivative contracts.

They cover a lot of ground. They run the range from the plain vanilla credit default swap to collateralized debt obligations packaged as securities. The latter can be a package of subprime mortgages. Credit default swaps are one of a number privately negotiated OTC derivative contracts. They are a kind of insurance against a possible default. They are vital for both many private and public institutions.

OTC derivative contracts also potentially pose far more risk than someone not having the cash to pay for a trade in a day or two.

That's because OTC derivatives are usually dated contracts that are tied to the performance of any underlying index or security over years. So counterparty risk rises dramatically. That's because there is usually a much longer period between execution and settlement than there is in a normal stock for cash clearing and settlement.  

 

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