source: DAML Github
| 1. The scenarioTwo parties want to transact a repo trade. |  |
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| 2. NovationThe clearing house becomes a central counterparty for the trading partners: that is, itnovatesthe trade, turning a single trade into two trades with a central counterparty. |  |
| 3. TransferThe clearing house takes ownership of collateral from both parties. |  |
| 4. GroupingRather than executing transfers individually, the clearing house groups them based on:counterpartysettlement datesecurity CUSIP (an identifier for financial instruments)currency | |
| 5. NettingThe clearing house bundles the grouped trades into Net Broker Obligations: this is callednetting.It uses these to create Delivery versus Payment contracts that reflect the net trades of each trading party and their obligations to the clearing house. |  |
| 6. SettlingFinally, according to these obligations, collateral is transferred to and from the clearing house. Thissettlesall trades. |  |