|European Union Electricity Market Glossary|
The "transit risk" for the clearing member client consists in the danger to loose assets provided by the client to the clearing member on account of the CCP margin if clearing member was to default prior to providing such client assets to the CCP, since the assets that were intended to be recorded in the client account at the CCP do not benefit from EMIR protections before reaching CCP.
Thus, in brief it means the exposition of the client to the clearing broker at any point in the process of providing or receiving margin in respect of client transactions.
The risk originates in the "principal-to principal" clearing model. However, if margin is called by the CCP before clearing member is able to acquire relevant funds from its clients and, in effect, clearing member uses its own funds to satisfy the CCP margin call, the client is protected.
In such situation clearing member is forced to recover such amounts from its clients only later - which results in clearing member exposition to its clients. More common, however, will in practice be the opposite arrangement.
|Last Updated on Saturday, 13 February 2016 22:00|