What Is the Main Function of a Centralized Clearing House in the Derivatives Market?

The main function of a centralized clearing house is to act as a counterparty to every trade, guaranteeing the performance of the contract for both the buyer and the seller. By standing between the two parties, the clearing house significantly reduces counterparty risk.

It also standardizes contracts, manages margin requirements, and facilitates the settlement process, thereby promoting market integrity and efficiency.