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Figure: Typical Payments Chains Between CCP and Clearing Customers

A flow diagram represents the ensuing payment flows when a CCP makes a margin call. There are 6 parties to these flows, represented by 6 boxes vertically stacked; from top to bottom, these are the CCP, the CCP's settlement bank, the clearing member's payment bank, the clearing member, the customer of the clearing member, and the customer's bank. To the left are arrows in red representing requests for cash: an arrow from the CCP to the clearing member, representing the CCP's request for margin to the member; another arrow from the clearing member to the customer, representing the member's request for margin from the customer; and a third arrow from the customer to the customer's bank, representing the customer's request for his bank to make the payment. To the right are arrows in green representing the subsequent payment flows: an arrow from the customer's bank to the clearing member, representing the payment; an arrow from the clearing member to the payment bank, as funds transmitted to the member are deposited at the payment bank; an arrow from the payment bank to the CCP's settlement bank, representing the clearing member's payment of the margin requested; and finally, an arrow from the settlement bank to the CCP, as the settlement bank credits the CCP's account for the funds received. In addition, there are several arrows, in dashed orange, that represent possible provisions of credit. The settlement bank may extend credit to the clearing member by receiving requests for margin and crediting the CCP's account on behalf of the clearing member before it has received funds from the member's payments bank; this is represented by dashed orange arrows from the CCP to the settlement bank and from the settlement bank to the clearing member on the left, and by a dashed orange arrow from the settlement bank to the CCP on the right. The clearing member may also extend credit to its customers by paying margin on the customer's behalf before it has received payment from the customer's account; this is represented by a dashed orange arrow from the clearing member to the payment bank. Finally, the customer's bank may also extend credit on behalf of the customer, sending payment to the clearing member before funds have been deposited; this is represented by a dashed orange arrow from the customer's bank to the clearing member.

Figure: Payments Chains on October 20, 1987

A flow diagram represents the ensuing payment flows when a CCP makes a margin call. There are 6 parties to these flows, represented by 6 boxes vertically stacked; from top to bottom, these are the CCP, the CCP's settlement bank, the clearing member's payment bank, the clearing member, the customer of the clearing member, and the customer's bank. To the left are arrows in red representing requests for cash: an arrow from the CCP to the clearing member, representing the CCP's request for margin to the member; another arrow from the clearing member to the customer, representing the member's request for margin from the customer; and a third arrow from the customer to the customer's bank, representing the customer's request for his bank to make the payment. To the right are arrows in green representing the subsequent payment flows: an arrow from the customer's bank to the clearing member, representing the payment; an arrow from the clearing member to the payment bank, as funds transmitted to the member are deposited at the payment bank; an arrow from the payment bank to the CCP's settlement bank, representing the clearing member's payment of the margin requested; and finally, an arrow from the settlement bank to the CCP, as the settlement bank credits the CCP's account for the funds received. In addition, there are several arrows, in dashed orange, that represent possible provisions of credit. The settlement bank may extend credit to the clearing member by receiving requests for margin and crediting the CCP's account on behalf of the clearing member before it has received funds from the member's payments bank; this is represented by dashed orange arrows from the CCP to the settlement bank and from the settlement bank to the clearing member on the left, and by a dashed orange arrow from the settlement bank to the CCP on the right. The clearing member may also extend credit to its customers by paying margin on the customer's behalf before it has received payment from the customer's account; this is represented by a dashed orange arrow from the clearing member to the payment bank. Finally, the customer's bank may also extend credit on behalf of the customer, sending payment to the clearing member before funds have been deposited; this is represented by a dashed orange arrow from the customer's bank to the clearing member.

The arrows on the right representing payment and credit extensions each have red bars across them representing the fact that on October 20, 1987 these payments and extensions were all interrupted. Customer's banks ceased providing credit and slowed their payments of funds to the clearing member; clearing members ceased providing credit to their customers and slowed requests for payments to CCPs; payment banks slowed transmitting funds to settlement banks; and settlement banks ceased providing credit to clearing members and slowed payments to CCPs.

Last Update: June 23, 2017