The derivatives markets´ main purpose is to allow transferring risks among the economy’s different participants. The most well-known derivatives contracts are forwards, futures, options and swaps. There are also a lot of custom-made combinations generically known as “exotic derivatives”.
These derivatives contracts will comply with their purpose of transferring risk as long as they are fulfilled. That’s why, one of the main interests of those participating in the derivatives exchanges and the entities that regulate them is the fulfilment of said instruments.
The derivatives markets can be organized in two ways and generally both forms coexist and feed on each other:
• “Institutionalized” or “Formal” markets, generally known as Futures Exchanges, due to the contracts that they trade.
• “Over-the-Counter” (OTC) or “Informal” markets.
The main characteristics of each one of them is listed below:
Futures Exchanges
OTC Markets
Standardized products:
• Futures
• Options
Non-standardized products:
• Forwards
• Swaps
Electronic or open outcry session
Generally by telephone
Subject to government regulation
They are generally not subject to government regulation
There is no "bilateralness". There is a Clearinghouse which is central counterparty of all participants.
Legal relationships between participants are bilateral.
Guarantee System
Credit Risk
· What is a Derivatives Clearinghouse?
It is a company whose main purpose is to register, clear, settle and guarantee the trades concluded in the futures exchange. To this end, it must fulfil two basic functions:
a – To be a legal counterparty of all contracts, becoming the buyer of all sellers and the seller of all buyers. This allows simplifying the legal relationships as each participant holds one bought or sold position before the Clearinghouse and can offset it by making an inverse trade, no matter the participant that is on the other side.
b – To manage a guarantee system, whose bases are:
- Each participant’s losses and profits are paid and collected daily (procedure known as mark-to-market)
- If any participant does not comply with its mark-to-market obligation, its trades are close out in the market.
- When concluding a trade, each participant has to post a guarantee whose purpose is to cover the losses that may entail the close out of the position due to its non-fulfilment.
·Argentina Clearing S.A., the only Derivatives Clearinghouse in Argentina
The only clearinghouse of futures and options in Argentina is Argentina Clearing S.A., a company created by ROFEX´s shareholders many years ago and which is now responsible for guaranteeing all the contracts traded in that market.
Beyond its basic functions, the Clearinghouse activity is very specialized and complex, as it has to manage a group of risks inherent in the derivatives trading, which are the following:
Argentina Clearing S.A. provides a sound infrastructure as regards legal regulations, systems, resources and market supervision, which allows it to achieve the possible maximum security level in our country, being at the same level as that of the most recognized clearinghouses worldwide.
