The Clearinghouse Role in Delivery

What this video covers

• How novation severs the direct tie between original counterparties, so the clearinghouse becomes buyer to every seller and seller to every buyer
• Why novation exists: it absorbs counterparty credit risk so traders only have to trust the well-funded clearinghouse, not each other
• The clearinghouse guarantee of financial performance (making the injured party whole with damages) versus the common trap of physical delivery
• Why a defaulting short leaves the clearinghouse paying money, not sourcing actual commodity, and what that means for the long
• The oldest-long rule for matching delivery notices, and why random, geographic, or pro rata assignment answers are wrong
• Why the clearinghouse never takes title to the physical goods, even though it sits in the middle of the trade
• How to spot the three recurring exam traps: physical delivery guarantee, random assignment, and clearinghouse-as-warehouse title