Counterparty Law and Legal Definition

Counterparty is a legal and financial term. It means a party to a contract or a the other party to a financial transaction. 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 counterparty. 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 there are many legal precedents that shape the common law. The Counterparty is also called Contraparty.