Legal Definition of Derivatives Clearing Organization

What is Legal Definition of Derivatives Clearing Organization?

Legal Definition of Derivatives Clearing Organization meaning (15) Derivatives clearing organization (A) In general The term “derivatives clearing organization” means a clearinghouse, clearing association, clearing corporation, or similar entity, facility, system, or organization that, with respect to an agreement, contract, or transaction— (i)enables each party to the agreement, contract, or transaction to substitute, through novation or otherwise, the credit of the derivatives clearing organization for the credit of the parties; (ii)arranges or provides, on a multilateral basis, for the settlement or netting of obligations resulting from such agreements, contracts, or transactions executed by participants in the derivatives clearing organization; or (iii)otherwise provides clearing services or arrangements that mutualize or transfer among participants in the derivatives clearing organization the credit risk arising from such agreements, contracts, or transactions executed by the participants. (B) Exclusions The term “derivatives clearing organization” does not include an entity, facility, system, or organization solely because it arranges or provides for— (i)settlement, netting, or novation of obligations resulting from agreements, contracts, or transactions, on a bilateral basis and without a central counterparty; (ii)settlement or netting of cash payments through an interbank payment system; or (iii)settlement, netting, or novation of obligations resulting from a sale of a commodity in a transaction in the spot market for the commodity.

 

reference: U.S. COMMODITY FUTURES TRADING COMMISSION – CFTC Glossary