The Risk Controllers: Central Counterparty Clearing in Globalised Financial Markets

7

Complete Clearing in North America

7.1 THE MINNEAPOLIS CLEARING ASSOCIATION

Just three weeks after LPCH opened for business in 1888, it received an approach from the other side of the Atlantic. The board was told that ‘leading flour millers of Minneapolis’ had written to suggest US flour contracts could be passed through the newly established clearing house in London.¹

Hermann Fortlage and Benjamin Tabor, both LPCH directors, opened negotiations with a Gunther de Ste Croix representing the millers from Minnesota. Although the talks came to nothing, the contact showed how information about clearing practices quickly spread from continent to continent in the globalised world of the late 19th century.

Despite such contacts, the European method of guaranteeing contracts pioneered in Le Havre and practised by LPCH did not take hold in the US. According to one 1896 account, the New York Coffee Exchange considered adopting the European method on several occasions but rejected it each time: ‘It has been attempted more than once to introduce such a clearing-house into the New York Coffee Exchange, but the proposition has never got farther than the Board of Managers,’ Henry Crosby Emery reported.²

Instead, in 1891, the Chamber of Commerce of Minneapolis, which was the city's grain exchange, launched its own clearing house with a novel method for mitigating the problem of counterparty risk for traders.

By 1890, Minneapolis had replaced Buffalo as the premier milling centre of the US. It ...