OTC Derivatives Clearing: How Does It Work and What Will Change?

Corporate associates Fabien Carruzzo and Joshua R. Little's article “OTC Derivatives Clearing: How Does It Work and What Will Change?” appeared in the July 14, 2011 issue of The Hedge Fund Law Report. The article discusses the impact of new over-the-counter derivatives regulations proposed in both the U.S. and the E.U., which once finalized will affect how market participants trade and settle OTC derivatives. Carruzzo and Little describe the clearing process, how market participants will trade and access clearing and what will change from the current bilateral trading model. The authors also address margin requirements and how trades and margin are protected in the event of default by a dealer (clearing member). Finally, the authors provide a general overview of the documentation governing contractual relationships among market participants.