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Clearing is all about novation. This basically means that the buyer and seller don't see each other as counterparties, but only see Goldman as the "middle-man"
by osrec 9y ago
Clearing is all about novation. This basically means that the buyer and seller don't see each other as counterparties, but only see Goldman as the "middle-man" counterparty. It's a method of reducing counterparty risk, as both parties end up transacting with a credible institution, rather than directly with each other. This also means that the central clearing counterparty takes on counterparty risk, and that's pretty much what the clearing fees are paid to them for.
- osrec 9y agoAs a footnote, I'm not sure how Goldman are going to novate the transactions - as in, will they actually issue 2 transactions on the blockchain?! I don't see a real need for that, given that the blockchain protects against such risks to a large extent. Maybe their definition of clearing for bitcoin is different to that for standard derivatives, in which case they will probably just help their non techy clients (i.e. many of the hedge funds in Mayfair and Manhattan) execute bitcoin transactions.
- tlrobinson 9y agoI believed the futures are “cash settled”, basically betting on the price of Bitcoin on other exchanges, not real Bitcoins.
- vostok 9y agoI'm not an expert on the nitty-gritty details of back office stuff, but typically novation comes into play when you're dealing with swaps. These are centrally cleared futures so you're not facing the person on the other side of the trade.