Can OTC Derivatives Utilize Netting, and If So, How Is It Different from a CCP’s Process?

Yes, OTC derivatives utilize bilateral netting, typically documented under a master agreement like the ISDA Master Agreement. This netting is only between the two counterparties to the agreement.

It differs from a CCP's multilateral netting because it does not involve a central intermediary and does not mutualize risk across the entire market, limiting its systemic risk reduction benefit.