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The clearing and settlement mechanisms of futures and options contracts in equity derivatives play a crucial role in maintaining market integrity, reducing counterparty risk, and ensuring timely fulfillment of obligations. These mechanisms involve a structured process undertaken by clearing corporations or clearing houses that act as intermediaries between buyers and sellers in the derivatives market. When a trade is executed on an exchange, it is first reported to the clearing corporation. At this stage, the clearing corporation becomes the counterparty to both sides of the transaction through a process known as novation. This means the clearing corporation takes on the _______ _______ ______ ________ ______.
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