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What Is the Role of a “Clearing House” in Mitigating Counterparty Risk?

The clearing house acts as a CCP, guaranteeing contract performance by substituting its credit risk for the original counterparty's risk.
Greeks.Live23.11.25

What Is the Role of a “Clearing House” in Mitigating Counterparty Risk?

A clearing house acts as a central counterparty (CCP) by becoming the buyer to every seller and the seller to every buyer. This process, called novation, guarantees the performance of the contract, effectively replacing the credit risk of the original counterparty with the credit risk of the clearing house.

They manage this risk through margin requirements, default funds, and netting procedures.

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