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

BREAKING DOWN Canadian Derivatives Clearing Corporation (CDCC)

The Canadian Derivatives Clearing Corporation (CDCC), initially called the Trans Canada Options (TCO), was established in 1977 through the merger of the Montreal and Toronto options clearinghouses. TCO changed its name to Canadian Derivatives Clearing Corporation in 1996. 

By 2000, the CDCC became entirely owned by the Montreal Exchange. Eight years later, the merger of the Montreal Exchange and the TSX Group changed the ownership of the CDCC to the TSX Group. Under this leadership, the Canadian Derivatives Clearing Corporation would expand its operations to include the clearing of fixed income transactions in 2012. 

The CDCC states it is the only integrated central clearing counterparty in North America which clears and settles not only futures and options but contracts for options on futures as well. The company has over 35 years of being Canada's central clearing counterparty and guarantor of derivative products which are exchange-rated. Furthermore, the CDCC includes more than 30 clearing members.

Canada ranks 9th in the Heritage Foundation’s 2018 Index of Economic Freedom. Having access to corporations such as the Canadian Derivative Clearing Corporation helps to keep it on the mostly free list. 

What the Canadian Derivatives Clearing Corp. Does

A counterparty, or clearinghouse, acts to guarantee transactions which take place between buyers and sellers. The most frequent association of a clearinghouse is with the futures market. All trades must transfer through a clearinghouse at the end of every trading session. Members are required to deposit enough funds to cover the member’s balance.

The purpose of a clearinghouse 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.

There are two dominant clearinghouses in the United States, the New York Stock Exchange (NYSE), and the NASDAQ. In addition to the CDCC Canada also has the CDS Clearing Depository Services Inc, The CLS Bank, and the LCH-Clearnet Limited’s SwapClear Service.