How Does Collateralization (Margin) Work to Mitigate Counterparty Risk within a CCP Framework? ⎊ Path

How Does Collateralization (Margin) Work to Mitigate Counterparty Risk within a CCP Framework?

CCP members must post collateral, known as margin, to cover the potential cost of replacing a derivatives contract if they default. Initial margin is collected upfront based on potential future exposure.

Variation margin is collected daily to cover mark-to-market losses. This collateral acts as a financial buffer, ensuring the CCP has funds to manage a defaulting member's portfolio without incurring a loss.

What Is “Initial Margin” in Derivatives Trading?

How Does the Default Waterfall of a CCP Protect Its Non-Defaulting Members?

What Is the Difference between Initial Margin and Variation Margin in a CCP?

Define ‘Variation Margin’ and Its Relationship to ‘Initial Margin’

What Is the Difference between Initial Margin and Variation Margin?

What Are the Initial Margin and Variation Margin, and How Do They Protect the Clearing House?

How Does the “Cover 2” Standard Relate to CCP Default Fund Sizing?

What Is a “Haircut” in the Context of Collateral Valuation?