The Logic behind Clearing

In relation to clearing, lawyers' biggest headache is caused by the fact that the economic outcome of a clearing process, that is the collapsing of multilateral exposures within an IT system, may not necessarily be matching the legal consequences. In that scenario, operations and legal enforceability may diverge - an immensely dangerous situation. I this post I propose a map of the different forms of clearing and describe their basic legal logic, to bring some clarity to this terminological thicket.