Home » Central Counterparty Clearing House (CCP)

Central Counterparty Clearing House (CCP)

« Back to Glossary Index

Central counterparty clearing houses (CCPs) are financial organizations, often operated by major banks, created with the objective of easing trading in derivatives and equities and guaranteeing efficiency and stability in financial markets.

CCPs perform two primary functions as the intermediary in a transaction:

  1. Clearing
  2. Settlement

What is clearing?

In the clearing process, the CCP becomes the counterparty to the buyer and the seller.

The central counterparty clearing house defines what is required from each party in a transaction to reduce counterparty credit risk and to guarantee the settlement of the transaction, even if one of the parties defaults.

What is settlement?

In the settlement process, the CCP oversees the correct and timely transfer of securities and/or cash between the parties to complete the transaction. After a transaction has been carried out between two counterparties, it is transferred to a CCP.

The Central Counterparty Clearing House then assumes the counterparty risk for both counterparties to the transaction. CCP’s responsibilities include risk checking, clearing, settlement, and general market monitoring.

Related
Parabolic

Parabolic describes a market that moves a great distance in a very short period of time, frequently moving in an accelerating Read more

Bitcoin Block

Blocks are data structures within the blockchain database, where transaction data in a cryptocurrency blockchain are permanently recorded. A block records Read more

Monetary Policy

Monetary policy refers to the actions taken by a nation’s central bank to influence the availability and cost of money and credit to Read more

XM Bonus