The Risk Controllers: Central Counterparty Clearing in Globalised Financial Markets

4

Early Clearing

4.1 THE FIRST TRADERS AND POST-TRADE PRACTICES

Centuries before the emergence of today's CCPs, humans developed techniques that would become part of the practice of clearing trades.

Archaeological discoveries suggest the first futures and options were traded around 1750 BC in the ancient city states of Mesopotamia. As soon as three or more people gathered to trade goods or services, there was a need to make sense of deals struck and payments to be made. One writer has speculated that temples, which facilitated trade in what is now Iraq, may have functioned as clearing houses nearly 4000 years ago.¹

As far as this author can tell, no scholar has yet constructed a picture of post-trade activities in Assyria from the thousands of cuneiform texts on baked clay tablets that provide details of the early trading, banking and accountancy practices in and among the cities of the region. Fast forward a few centuries, however, and there is evidence of techniques and practices that form part of the DNA of today's CCPs.

Netting has existed since antiquity. The principle of compensatio in Roman law recognised the setting-off of payments due when settling disputes between debtors and creditors. It was resurrected after the decline and fall of the Roman Empire in the West to form the legal basis for netting in Medieval Europe.

European traders in the Middle Ages developed increasingly sophisticated netting techniques to handle bills of exchange, which were the main form of cashless ...