What Is a Clearing Member Trade Agreement (CMTA)?
A clearing member trade agreement (CMTA) is an arrangement by which an investor may enter derivatives trades with a limited number of different brokers but later consolidate these trades at the end of the trading day with only one broker for clearing. The CMTA is used exclusively for options, futures, and other derivatives.
- A clearing member trade agreement (CMTA) allows investors to enter derivative trades with multiple brokers and later clear all trades with one broker.
- CMTA allows all trades, especially smaller and odd-lot trades, to clear through one source which streamlines the process for brokers and investors alike.
- For options trades, the CMTA requires trades cleared through the Options Clearing Corporation (OCC).
Understanding a Clearing Member Trade Agreement (CMTA)
A CMTA is an agreement between different brokers to allow and settle trades from all involved brokers through one single broker. Since an investor can have dealing relationships with multiple brokers, they may initiate trades with several of them at a time. But when it comes time to clear these trades, they can settle with only one broker. Without the clearing member trade agreement, the investor would make trades with different brokers and the trades would clear at multiple brokers. This can be cumbersome and take a lot of time when it comes to closing the positions. With a CMTA in place, the one broker will present all the trades to the clearinghouse for settlement.
Clearing is necessary for matching all buy and sell orders traded in the marketplace. Clearing provides smoother and quicker markets, as parties make transfers to the clearing corporation rather than to each party with whom they have transacted. With the consolidation of a position, some brokers will "give up" their position to the clearing firm.
A CMTA makes it possible for an investor to use several different brokers to explore trading markets for their investment. Investors may use different brokers for various reasons. For example, one broker may have more experience and better knowledge of expertise in a given area. A trader may want to trade with this broker for their research. A different broker could be more skilled in a given sector. If the investor is interested in creating a stock portfolio, for example, diversified into different industry groups or sectors, then it makes sense to trade with the broker best suited to each one.
Having all trades, especially smaller and odd-lot trades clear through one source streamlines the process for brokers and investors alike. Transactions automatically move from the executing firm into the account of the carrying, or "take up" firm. The investor designates the carrying firm at or before the time of order entry.
Such an agreement has advantages for investors because they can monitor all orders via one central source, rather than having to examine records from several different brokerage firms. Also, a streamlined clearing system reduces costs concerning commissions and fees, and it saves time.
For options trades, the CMTA requires trades cleared through the Options Clearing Corporation (OCC). The OCC handles the clearing process for several options types traded across many exchanges. The Securities and Exchange Commission (SEC) regulates the OCC.