Jurisdiction(s):
United Kingdom

Key definition

Counterparty definition

What does Counterparty mean? In legal practice, the counterparty is the other person or entity with whom a party enters into a contract or completes a transaction. The term is descriptive and used across contracts, corporate deals, banking, insurance and derivatives. It is not generally defined in contract law, but specific financial services legislation uses defined variants, such as eligible counterparty under MiFID II and financial/non-financial counterparty and central counterparty (CCP) under EMIR. A transaction may have multiple counterparties. Correctly identifying the counterparty (legal name, capacity and authority) is essential for due diligence, KYC/AML, service of notices, performance and enforcement. Lawyers assess counterparty risk...

UK EMIR OTC Derivatives Clearing: Obligations, Thresholds, Exemptions, Principal/Agency/EATM Models, Reporting, Risks, Documentation and Indirect Clearing

Published by a LexisNexis Banking & Finance expert

Practice notes

What does this Practice Note cover?

This Practice Note offers an overview of the clearing of over-the-counter (OTC) derivative contracts under UK EMIR. It covers:

what clearing OTC derivative contracts entails
the reasons for clearing OTC derivatives
the types of OTC derivative contracts subject to the mandatory clearing obligation
who is obliged to clear
who is exempt from the clearing duty
how clearing works under the principal and agency models
the documentation required for a clearing relationship
the concept and mechanics of indirect clearing

What is OTC derivative clearing?

When an OTC derivative trade between two counterparties is centrally cleared, a central Counterparty (CCP) positions itself between the original parties to the transaction. Once the parties have agreed the OTC trade, the CCP becomes the buyer to every seller and the seller to every buyer. Consequently, the two parties do not face each other’s Credit risk as they would in a bilateral arrangement. Instead, the CCP calls for margin in exchange for assuming each party’s credit exposure. Margin is a...

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Web page updated on 21/05/2026

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