Central counterparties can reduce, but also cause risks

Abstract

In securities clearing, a central counterparty (CCP) interposes itself between the counterparties, becoming a buyer to the seller and a seller to the buyer. In so doing, the CCP assumes the counterparty risks related to the transaction. Counterparty risks arise between CCPs from their interoperability arrangements. It is vital for the stability of the financial system that CCPs have in place sound risk management practices.