A counterparty is a legal and financial term. It means a party to a contract. A counterparty is usually the entity with whom one negotiates on a given agreement, and the term can refer to either party or both, depending on context.

Any legal entity can be a counterparty. Examples of legal entities are a person

Person

A person is a human being, or an entity that has certain capacities or attributes strongly associated with being human , for example in a particular moral or legal context...

, a married couple

Marriage

Marriage is a social union or legal contract between people that creates kinship. It is an institution in which interpersonal relationships, usually intimate and sexual, are acknowledged in a variety of ways, depending on the culture or subculture in which it is found...

, a corporation

Corporation

A corporation is created under the laws of a state as a separate legal entity that has privileges and liabilities that are distinct from those of its members. There are many different forms of corporations, most of which are used to conduct business. Early corporations were established by charter...

, a limited partnership

Limited partnership

A limited partnership is a form of partnership similar to a general partnership, except that in addition to one or more general partners , there are one or more limited partners . It is a partnership in which only one partner is required to be a general partner.The GPs are, in all major respects,...

, a city

City

A city is a relatively large and permanent settlement. Although there is no agreement on how a city is distinguished from a town within general English language meanings, many cities have a particular administrative, legal, or historical status based on local law.For example, in the U.S...

, etc.

Usually, to say that there are counterparties to an arrangement means that there is some potential for conflict between them. Well-drafted contracts usually attempt to spell out in explicit detail what each counterparty's rights and obligations are in every conceivable circumstance, though there are of course limits. There are general provisions for how counterparties are treated under the law, and (at least in common law

Common law

Common law is law developed by judges through decisions of courts and similar tribunals rather than through legislative statutes or executive branch action...

 legal systems) there are many legal precedents that shape the common law.

Financial services sector

Within the financial services

Financial services

Financial services refer to services provided by the finance industry. The finance industry encompasses a broad range of organizations that deal with the management of money. Among these organizations are credit unions, banks, credit card companies, insurance companies, consumer finance companies,...

 sector, the term market counterparty is used to refer to government

Government

Government refers to the legislators, administrators, and arbitrators in the administrative bureaucracy who control a state at a given time, and to the system of government by which they are organized...

s, national banks, national monetary authorities and international monetary organisations such as the World Bank Group

World Bank Group

The World Bank Group is a family of five international organizations that makes leveraged loans, generally to poor countries.The Bank came into formal existence on 27 December 1945 following international ratification of the Bretton Woods agreements, which emerged from the United Nations Monetary...

 that act as the ultimate guarantor for loans and indemnities. The term may also be applied, in a more general sense, to companies acting in this role.

Also within financial services, counterparty can refer to brokers, investment banks, and other securities dealers that serve as the contracting party when completing "over the counter"

Over-the-counter (finance)

Within the derivatives markets, many products are traded through exchanges. An exchange has the benefit of facilitating liquidity and also mitigates all credit risk concerning the default of a member of the exchange. Products traded on the exchange must be well standardised to transparent trading....

 securities transactions. The term is generally used in this context in relation to "counterparty risk", which is the risk of monetary loss a firm may be exposed to if the counterparty to an over-the-counter securities trade encounters difficulty meeting its obligations under the terms of the transaction.

Insurance sector

Within the insurance

Insurance

In law and economics, insurance is a form of risk management primarily used to hedge against the risk of a contingent, uncertain loss. Insurance is defined as the equitable transfer of the risk of a loss, from one entity to another, in exchange for payment. An insurer is a company selling the...

 sector, this term is extended to include companies offering or requiring high-level retrocession

Retrocession

Retrocession may refer to:*the transfer of risk from a reinsurer to another reinsurer*the return of something that was ceded in general or, specifically:...

 of insurance risk to insurance companies in a role similar to that offered by governments. This term, over time, has become more generally applied to companies offering or requiring retrocession

Retrocession

Retrocession may refer to:*the transfer of risk from a reinsurer to another reinsurer*the return of something that was ceded in general or, specifically:...

 and other forms of reinsurance

Reinsurance

Reinsurance is insurance that is purchased by an insurance company from another insurance company as a means of risk management...

.