A DCO provides clearing services that (i) enable parties to a transaction to substitute the credit of the DCO for the credit of the parties, (ii) provides for the settlement or netting of obligations resulting from transactions executed by participants in the DCO, or (iii) otherwise provides clearing services that mutualize among participants in the DCO the credit risk arising from transactions executed by the participants.  See CEA Section 1a(15).  Entities that intend to provide clearing services for futures contracts, options on futures contracts, or swaps must register with the CFTC as a DCO.

Under Part 39 of the CFTC’s regulations, registered DCOs must comply with the Core Principles set forth in CEA Section 5b as well as other additional CFTC requirements, such as the maintenance of sufficient financial and operational resources, the implementation of appropriate risk management capabilities, establishment of adequate rules regarding protection of participant funds, and compliance with recordkeeping and reporting requirements.