What Is the Primary Difference between Mandated and Voluntary Clearing?
Mandated clearing means that regulators legally require certain standardized derivative contracts to be cleared through a CCP to reduce systemic risk. Voluntary clearing is when two counterparties choose to clear a contract through a CCP even if not legally required, typically to benefit from the reduced counterparty risk and lower capital charges.
Mandated clearing is a regulatory tool.
Glossar
Mandated Clearing
Clearing ⎊ Mandated clearing refers to the regulatory requirement for certain derivatives transactions to be processed through a central counterparty (CCP).
Voluntary Clearing
Clearing ⎊ Voluntary clearing involves submitting over-the-counter (OTC) derivative transactions to a central clearing counterparty (CCP) or a decentralized clearing protocol, even when regulatory mandates do not require it.