What is Central Counterparty Clearing?
Central Counterparty Clearing A mechanism whereby a central counterparty (CCP) interposes itself between trading parties in derivatives and securities markets, guaranteeing the terms of a trade and reducing counterparty risk.
Source: CFA Institute, IFRS Foundation, FASB (GAAP), Basel III Framework
How is “Central Counterparty Clearing” Used in Practice?
Central counterparty clearing reduces systemic risk by ensuring trades are honored even if one party defaults.
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Who Needs to Know This Term?
- Financial Analysts
- Bankers
- Traders
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What is Central Counterparty Clearing?
A mechanism whereby a central counterparty (CCP) interposes itself between trading parties in derivatives and securities markets, guaranteeing the terms of a trade and reducing counterparty risk.
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