About Central Counterparties

The presence of a central counterparty like CME Clearing is an important customer advantage compared to over-the-counter markets. CME Clearing’s status as the central counterparty allows it to deliver operational and financial efficiencies to market participants, while reducing the risk inherent in trading activities.

Upon a transaction’s acceptance by CME Clearing, a central counterparty (CCP) imposes itself as the legal counterparty to every trade. This substitution of counterparties is accomplished through the legal process of contract novation, which discharges the contract between the original trading counterparties and creates two new, legally binding contracts – one between each of the original trading counterparties and CME Clearing.

Initially devised as a mechanism to reduce transaction costs by calculating members’ net obligations to post margin and to settle contracts, the role of the CCP has expanded over time to include:

  • Robust transaction processing
  • Post trade management functions
  • Financial management of members collateral deposits
  • Final settlement of outstanding obligations through financial payment or physical delivery
  • The overall risk management of market participants
  • A financial guarantee of performance of its contracts

CME Clearing prides itself on developing innovative solutions to the marketplace along with superior customer service, available 24-hours a day, six days a week. Indeed the many benefits derived from the role of CME Clearing as CCP have helped customers manage risk during both periods of unprecedented derivatives industry growth and times of economic uncertainty.