Compensation agreements mean two general and very different things: trade clearing agreements between member companies and bilateral clearing agreements. The trade agreements of countervailing members are between an investor and a broker and allow the broker to represent the interests of his client and allows the broker to choose from the brokers participating in the agreement. These are usually options, futures and other derivatives on trading exchanges, but may also include stocks, bonds and securities. The bilateral compensation agreement is a political hot potato that is not often used. It establishes reciprocal trade agreements between governments for a limited time set by the agreement. A common fear of traders in the market is to engage in transactions that do not end well, one of the parties not fulfilling its end of the agreement. Clearing houses are used to provide additional security so that investors can act freely, knowing that their investment decisions are respected and enforced by the clearing company. Do you consider an investor who wants to sell 500 Stock SharesWhat is a stock? A person holding shares in a company is called a shareholder and has the right to claim a portion of the company`s residual assets and income (if the company is dissolved). The terms “equities,” “equities” and “equity” are used interchangeably. Emirates Airlines to another investor. It is up to the clearing house to ensure that the investor receives the appropriate amount for his 500 shares and that the buyer actually receives all the shares he has paid. With a clearing house, both parties can count on a successful transaction.
Clearing houses charge a fee for their services, known as the clearing commission. When an investor pays a commission to the broker, this compensation fee is often already included in this commission amount. This levy promotes centralization and coordination of transactions and facilitates the correct delivery of purchased investments. Anyone involved in a financial transaction wants to be protected with respect to the transaction. The buyer wants to be sure that he will receive the goods or services he has purchased and the seller wants to rely on the payment. The clearing house stands at the centre and occupies both parties to ensure that both parties are satisfied. Before an over-the-counter derivative can be settled through a central counterparty, basic documentation must be established between the client, the execution broker, the countervailing member and the relevant central counterparty.