The approach behind member clearing agreements allows investors to use different investment options through different brokers or brokers, usually to leverage the expertise of each broker in certain areas of the market. This is not a bad investment strategy. However, when an investor enters into a clearing agreement, the orders are consolidated through a single broker. Consolidation benefits the investor by reducing the costs and commissions related to time and effort that must be paid for executing orders. A CMTA is an agreement between different brokers to allow and settle the trades of all brokers involved through a single broker. As an investor can have relationships with several brokers, they can launch trades with several of them at the same time. But when it comes time to remove these trades, they can stand out with only one broker. Without the countervailing member trading agreement, the investor would make transactions with different brokers and the trades would be clear to several brokers. This can be complicated and time-consuming when it comes to closing positions.
With a CMTA on site, one of the brokers will present all trades to the clearing house for settlement. The application of clearing agreements is a widespread practice, especially for investors looking for diversified portfolios. This practice is so widespread that a clearing house industry has developed to comply with this practice. Clearing companies generally offer brokers with expertise in a wide range of investment transactions, including bond derivatives and commodity futures. They also often offer banking expertise, which allows transactions and remittances to be carried out around the world between national and international banks. As part of a clearing agreement, clearing companies can be expected to perform accounting on behalf of the client and pay their commercial debts and profits through electronic transactions with other merchants and investors. Clearing companies may also be required to make automatic withdrawals or payments to certain investment accounts on the basis of a plan as defined in the clearing agreement. Due to the popularity and widespread practice of clearing agreements, an entire sector has been developed by clearing companies. The practice has developed mainly among investors looking to diversify their portfolios. A Countervailing Member Trading Agreement (CMTA) is an agreement whereby an investor can enter into derivatives transactions with a limited number of different brokers, but can then consolidate those trades with a single clearing broker at the end of the trading day. With the consolidation of a position, some brokers will «abandon» their position to the clearing company. Bilateral compensation agreements and member compensation agreements can be described as trade compensation agreements, but the two are totally different.
Member compensation agreements are common and well accepted, while bilateral compensation agreements are often referred to as hot political potatoes. Compensation agreements mean two general and very different things: trade clearing agreements between member companies and bilateral clearing agreements. The trade agreements of countervailing members are between an investor and a broker and allow the broker to represent the interests of his client and allows the broker to choose from the brokers participating in the agreement. These are usually options, futures and other derivatives on trading exchanges, but may also include stocks, bonds and securities. The bilateral compensation agreement is a political hot potato that is not often used. It establishes reciprocal trade agreements between governments for a limited time set by the agreement. A countervailing member trading agreement is a document that establishes a working relationship between an investor and a broker.