The Dodd-Frank Act eliminated bilateral trading for most over-the-counter derivatives and will require most derivatives to be cleared through a clearinghouse, or central counterparty (CCP), which will hold collateral (i.e., margin) from both counterparties.  The principal goal of central clearing is to reduce counterparty risk associated with swaps and other derivatives transactions.  Hedge funds that trade swaps, futures and options on futures will likely need to clear those derivative transactions through a registered “futures commission merchant” (FCM) which will, in turn, face the CCP as counterparty with respect to such transactions.  As a result of these regulatory changes, hedge fund managers must understand cleared derivatives agreements entered into with FCMs and the key points to negotiate with respect to such agreements.  A recent webinar hosted by Dechert LLP provided an overview of the new rules governing margin held by FCMs on behalf of their customers and a roadmap for negotiating cleared derivative agreements with FCMs.  This article summarizes the key takeaways from the webinar.  For a general discussion of central clearing, see “Don Muller and Joshua Satten of Northern Trust Hedge Fund Services Discuss the Impact of OTC Derivatives Reforms on Hedge Fund Managers,” Hedge Fund Law Report, Vol. 6, No. 6 (Feb. 7, 2013).