Clearing Through Rings
Clearing through ring settlements were first used before the establishment of the Board of Trade Clearing Corporation in 1925. They are relatively informal arrangements between three or more counterparties having an interest in settling their contracts.
The incentives to enter a ring stem from reduced exposure to counterparty risk and from reductions in the cost of maintaining open positions. To achieve these benefits, participants in a ring were required to accept substitutes for their original counterparties. Exchanges adopted rules and practices which facilitated ringing settlements thereby enabling access to those benefits.
- Origins Of The Modern Exchange Clearinghouse: A History Of Early Clearing And Settlement Methods At Futures Exchanges. Federal Reserve Bank of Chicago.