How Does the Introduction of a Central Counterparty (CCP) Change the Counterparty Risk Profile? ▴ Learn

How Does the Introduction of a Central Counterparty (CCP) Change the Counterparty Risk Profile?

A CCP interposes itself between the original buyer and seller, becoming the buyer to every seller and the seller to every buyer. This process, called novation, mutualizes and manages the counterparty risk.

Instead of facing the original counterparty's credit risk, participants now face the CCP's much stronger, centralized credit risk, significantly reducing systemic risk.

What Is “Novation” and Why Is It Fundamental to a CCP’s Function?

How Does a Central Counterparty (CCP) Mitigate Counterparty Risk?

Are All Over-the-Counter (OTC) Derivatives Subject to Mandatory Clearing and Novation?

How Does Novation Impact the Netting of Exposures?