Clearing and Settlement

AQS facilitates clearing and settlement via The Options Clearing Corporation (OCC) and the Depository Trust Company (DTC). Following the AQS price discovery process and DTC settlement, OCC novates itself into all AQS transactions as the borrower to every loan and the lender to every borrow. In AQS, the central counterparty guarantee reduces counterparty default risk, corporate action settlement risk, rebate payment risk, mark-to-market payment risk and buy-in delivery risk.

Post-Transaction Processing

AQS Middle Office (AQS:MO) automates the daily actions of post-transaction processing. AQS:MO is responsible for processing all standard events affecting a stock loan and updates each open position on a daily basis. These events include mark-to-market valuation, recalls, returns (partial or full), re-rates and corporate actions. Matched borrows and loans are sent from AQS directly to AQS:MO where the matched pair is validated before it is forwarded to OCC. OCC, as the central counterparty, passes the matched pair to DTC for settlement. DTC then uses its ‘look ahead’ accounting function to confirm that the shares and cash are in place in the appropriate counterparty’s account before it settles the transaction. Upon confirmation of settlement by DTC, acknowledgement is sent to OCC and passed on to AQS. Members may view the status of their transactions in AQS on a real-time basis.

Integration between the electronic market, clearance and settlement processes in AQS allows for the guarantee of payment and settlement risk. There is dramatically reduced post-trade risk exposure in AQS, and the movement away from multilateral trade reconciliations to a single point of reconciliation reduces overall operational risk.