CCP

CCPs provide legal and financial intermediation to reduce counterparty risk in financial markets by guaranteeing trade performance. They collect margin from participants, maintain default funds, and use sophisticated risk management to protect against member defaults. CCPs enable multilateral netting of positions and payments, significantly reducing settlement volumes and capital requirements. Post-2008 regulations mandate central clearing for standardized derivatives, while CCPs also serve equity, bond, and repo markets. CCPs must meet strict regulatory requirements including capital standards, risk management, default procedures, and operational resilience. They use daily mark-to-market, variation margin collection, and comprehensive stress testing to manage risk. CCP default management includes tools like forced allocation, partial tear-up, and loss allocation among surviving members.