What is 'Canadian Derivatives Clearing Corporation - CDCC'

The Canadian Derivatives Clearing Corporation (CDCC) is the central clearing counterparty for exchange-traded derivative products, such as options and futures, in Canada.

BREAKING DOWN 'Canadian Derivatives Clearing Corporation - CDCC'

The Canadian Derivatives Clearing Corporation (CDCC) also acts as the clearinghouse for a growing range of over-the-counter financial instruments including fixed income and foreign exchange. CDCC is a wholly-owned subsidiary of the Montreal Exchange and operates as a subsidiary of Bourse de Montreal, Inc.

The organization was first referred to as Trans Canada Options (TCO), which was established in 1977 through the merger of the Montreal and Toronto options clearinghouses. Trans Canada Options changed its name to Canadian Derivatives Clearing Corporation in 1996. In 2000, the CDCC became entirely owned by the Montreal Exchange. In 2008, the Montreal exchange and the TSX group merged to become the TMX group, the current owner and operator of the CDCC. Leading to 2012, when the CDCC operations were expanded to include clearing of fixed income transactions.

Canada ranks 9th in the Heritage Foundation’s 2018 Index of Economic Freedom. Having access to corporations such as the Canadian Derivative Clearing Corporation, which states it is the only integrated central clearing counterparty in North America that clears and settles futures, options and options on futures helps to keep it on the mostly free list. The company has over 35 years of being the central clearing counterparty and guarantor of exchange-rated derivative products in Canada which includes more than 30 clearing members.

What is a Clearing Party

A clearing party, or clearing house, acts to guarantee transactions that take place between buyers and sellers by acting as a buyer to each seller and a seller to each buyer. There are two major clearing houses in the United States, the New York Stock Exchange and the NASDAQ. In addition to the CDCC Canada has the CDS Clearing Depository Services Inc, The CLS Bank, and the LCH.Clearnet Limited’s SwapClear Service, SwapClear.

Clearing houses are most often associated with the futures market. All trades are required to be cleared through the clearing house at the end of every trading session, and members are required to deposit enough funds to cover the member’s balance.

The purpose of a clearing house is to stabilize the market and expedite efficiencies. This is especially necessary when dealing with the futures market as the transactions are complex and require a stable intermediary. That’s where the Canadian Derivative Clearing Corporation comes in, creating a safe and secure environment for such trades.

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