What Is a CCP in Financial Markets?

A Central Counterparty (CCP) is an entity that interposes itself between the buyer and seller in a financial market transaction, becoming the buyer to every seller and the seller to every buyer. The CCP guarantees the terms of the trade, even if one of the original parties defaults.

This mechanism is crucial for reducing systemic risk and increasing market confidence by standardizing and guaranteeing the settlement process, particularly in derivatives and securities markets.