In finance, NCM typically stands for Non-Clearing Member.
Based on the provided reference, Non-Clearing Members (NCMs) are companies that do not possess a clearing license. Despite lacking this license, they are still able to participate in clearing processes within financial markets where services like those provided by ECC are available.
How do NCMs operate without a clearing license?
- They engage in clearing activities as clients of a Clearing Member (CM).
- A Clearing Member (CM) is a financial institution or entity that holds the necessary clearing license.
- For their transactions to be successfully cleared, an NCM must select and establish a relationship with a Clearing Member of their choosing.
Essentially, the Clearing Member acts as an intermediary, processing and guaranteeing the trades of their NCM clients through the central clearing house.
Here's a simple breakdown:
- NCM: Company that trades but doesn't have a clearing license.
- CM: Company that trades and does have a clearing license.
- Relationship: NCM uses a CM's license and infrastructure to clear trades.
This structure allows companies that may not meet the stringent requirements or bear the costs of becoming a full Clearing Member to still access cleared markets, benefiting from the risk mitigation provided by central clearing houses through their relationship with a CM.
