The system of margins and the clearing house in the system of commodity futures markets

In a commodity futures trading system, the clearing house is of great importance. This paper describes and analyses in detail its essence functions and numerous activities. The main goal and a major task of such activities is to preserve financial integrity and stability of the market place. Clearing houses accomplish this task by means of a financial safeguard system of the futures markets. In order to preserve financial integrity and stability of the commodity futures markets, the clearing house uses three mechanisms. First, the membership in a clearing corporation requires a certain business and professional profile of a firm or an individual member accompanied by a minimal amount of capital determined by special regulations of a clearing corporation and the stock exchange. Second, the clearing house provides a financial safeguard through self-insurance schemes: funded and unfounded ones. Third, the clearing house uses a developed system and mechanism of margins through which it most efficiently exerts permanent control and sustains financial stability of the trading system as a whole. The third system of preserving financial integrity and stability of commodity futures markets is undoubtedly of the greatest importance, as it simultaneously embodies the true nature and essence of commodity futures markets. The development of margin system in commodity futures market has been a long process through which the clearing house has become a general partner and a guarantee of all stock exchange transactions. As a general partner the clearing house embodies the total amount of capital on the stock exchange. In this way, the system of margins appears to be acting not only as an element of the commodity market financial safeguard, but also to have a completely new function, that of imposing capital as a homeostatic subject which maintains its total capital value. The preservation of the total capital value flowing into the commodity futures market is the first and the basic function of the system of margins. However, it has an additional function: to guarantee historical cost of the goods, thereby maintaining the value of individual capitals, the function which is accomplished through various hedging strategies of individual capital.