What Is the Primary Function of a “Central Counterparty” (CCP)?
The primary function of a Central Counterparty (CCP), or clearinghouse, is to manage and mitigate counterparty credit risk in financial transactions. It interposes itself between the two parties to a trade, guaranteeing the performance of the contract even if one party defaults.
This ensures market integrity and stability by mutualizing and managing risk.
Glossar
Counterparty Credit Risk
Exposure ⎊ Counterparty credit risk in cryptocurrency derivatives arises from the potential for a participant to default on contractual obligations, impacting net market value.
Central Counterparty
Risk Mitigation ⎊ Central Counterparty, or CCP, refers to an entity stepping between the buyer and seller in a derivatives transaction, guaranteeing performance obligations even if one party defaults.