The role of a clearinghouse is to guarantee the financial obligations of every contract it clears. The clearinghouse achieves this by acting as the buyer to every seller, and the seller to every buyer. Therefore, a clearing member who buys or sells a futures contract has an obligation to the clearinghouse and not to the party on the other side of the transaction, and the clearinghouse has an obligation to the clearing member.
The Canadian Derivatives Clearing Corporation (CDCC) is the issuer, clearinghouse, and guarantor of exchange-traded equity, index, currency and interest rate derivative contracts traded in Canada. CDCC also offers central counterparty clearing services for OTC equity instruments.
CDCC clears all equity, interest rate and currency derivative contracts traded on the Montréal Exchange, as well as OTC options on single-name equities and ETF. CDCC is developing the infrastructure for central counterparty services to the Canadian fixed income market. It will initially offer central counterparty clearing for repurchase transactions (repos).
CDCC maintains two risk-based portfolio margining systems. From 1990 to 1997, the Theoretical Intermarket Margin System (TIMS), first developed by the Options Clearing Corporation, was the only margining method used by CDCC. In March 1997, CDCC augmented its margining process by implementing the Standard Portfolio Analysis of Risk (SPAN®) system developed by the Chicago Mercantile Exchange. In April 2006, CDCC made major changes within its systems to make SPAN® CDCC's margining system of choice.
A comprehensive internal control program is in place at CDCC to ensure the integrity of all margin, operational, financial and information systems. CDCC personnel carry out regular self-assessments of compliance with controls on trade processing and settlement, the margin system, information technology, and accounting. CDCC's auditors test the operation of these controls on a continuous basis, and report regularly to CDCC's Board of Directors. The auditors also provide an annual opinion on the relevance of the control procedures to achieve CDCC's stated internal control objectives. The auditors' report containing this opinion is available to Clearing Members.
The objectives of this report is to highlight those key internal control procedures with respect to the clearing, assignment and exercise of derivative contracts traded on the Montréal Exchange; the collection and safeguarding of margins with respect to derivative contracts; and the administrative and information technology processes that support them.