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Why Is the MTM Process Essential for the Integrity of the Derivatives Market?

It prevents the accumulation of credit risk, ensuring the clearinghouse can guarantee contract performance and maintain stability.
Greeks.Live21.11.25

Why Is the MTM Process Essential for the Integrity of the Derivatives Market?

MTM is essential because it prevents the accumulation of credit risk between counterparties. By settling gains and losses daily, it ensures that no party owes a massive, unmanageable debt to the clearinghouse or other participants.

This daily settlement mechanism is the foundation of the clearinghouse's ability to guarantee contract performance and maintain systemic financial stability.

Can Two Private Parties Agree to MTM Terms in a Forward Contract?
In a Tokenized Option, What Specific Mechanism Replaces the Traditional Clearinghouse?
How Does MTM Reduce Systemic Risk in the Financial System?
What Is the Role of a Clearinghouse in Traditional Financial Settlement?

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