A swap that is, directly or indirectly, submitted by its counterparties to, and cleared by, a derivatives clearing organization registered with an exchange commission. It is an over-the-counter (OTC) agreement that is eligible to be cleared by the clearing organization, but which are not executed on an exchange either electronically or on the trading floor.

The clearing organization guarantees both parties to the swap by serving as a central counterparty. The clearing organization terminates the original swap and creates two new swaps instead: one between it and each counterparty to the original swap.

A cleared swap contract is established when the parties to an off-exchange transaction agree to abolish their OTC contract and replace it with a cleared swap contract. Centralized clearing offers traders of contracts listed for trading on an exchange with a certain set of benefits including credit risk intermediation and the ability to offset positions created with different counterparties.

Cleared swap contracts allows eligible OTC market participants the ability to clear transactions through an intermediary. In addition, clearing members can hold the cleared swaps and the margin deposited for these contracts in the same accounts in a manner similar to holding positions and margin deposited with respect to futures contracts traded on an exchange.

An uncleared swap is a bilaterally executed swap that is not cleared and settled through a clearing organization.