Clearing Market Structure
Understanding Clearing Marketing Structure
CME Clearing, our clearinghouse, clears and guarantees all matched transactions occurring through its exchanges. CME Clearing also establishes and monitors financial requirements for clearing members and sets minimum performance bond levels for all products traded on markets for which it provides clearing services.
By dealing exclusively with clearing members, CME Clearing holds our members accountable for positions, regardless of whether such positions are for the accounts of individual members (like floor traders), non-member customers (hedge funds) or the clearing member’s own account.
In turn, as the contra side to every position, CME Clearing is held accountable for our clearing members’ financial performance of all open positions.
To guarantee overall performance to our members, CME Clearing is comprised of several functional areas, including risk management, banking and collateral management, financial and regulatory surveillance, compliance, and operations.
Each team has a distinct role in administering CME Clearing’s financial safeguards.
Clearing Responsibilities
Risk management and financial surveillance are the two primary functions administered by CME Clearing.
The risk management and financial surveillance techniques employed by CME Clearing are comprehensive and specifically designed to:
- Assure that sufficient resources are available to cover future obligations
- Prevent the accumulation of losses
- Promptly detect financial and operational weaknesses
- Allow swift and appropriate action to be taken to rectify any financial or operational problems and protect the clearing system
CME Clearing maintains policies and procedures to:
- Verify and guarantee all matched trades
- Ensure the timely and orderly flow of funds to settle each clearing firm’s trading gains and losses, transfer payment of premiums, and margin all open positions
- Record the eventual offset, exercise, or delivery in settlement of every open contract
- Conversely, every clearing firm is responsible for:
- The matching, clearing, marking to market, margining, and ultimate delivery, exercise, or offset of every contract on its books
- A thorough familiarity with all procedures associated with trading and the exchange
- Compliance with all rules and procedures specified in the exchange rulebook
- Ensuring that appropriate risk management and operational staff are available to support trading activities
CME Clearing allows firms to organize their trading accounts in flexible ways that promote operational efficiency. CME Clearing defines an organizational structure that firms utilize to define their business operations.
The basic account structure definition associated with a clearing firm to pursue “normal clearing” includes a:
- Trading member firm
- Position account
- Performance bond account
- Settlement account
These accounts will be discussed in more details in a separate lesson.