MarketCentral counterparty clearing
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Central counterparty clearing

A central clearing counterparty (CCP), also referred to as a central counterparty, is a financial market infrastructure organization that takes on counterparty credit risk between parties to a transaction and provides clearing and settlement services for trades in foreign exchange, securities, options, and derivative contracts. CCPs are highly regulated institutions that specialize in managing counterparty credit risk. An extensive overview of the academic literature can be found in Berndsen (2021).

History
Post-2008 financial crisis Due to the 2008 financial crisis, the G20 leaders agreed at the 2009 G20 Pittsburgh summit that all standardised derivatives contracts should be traded on exchanges or electronic trading platforms and cleared through central counterparties (CCPs). In the United States, as part of the Obama financial regulatory reform plan of 2009, pressure has been placed on traders of derivatives such as credit default swaps (CDS) to make their trades on an open exchange with a clearinghouse. In June 2009, Federal Reserve official Alfred Kohn mentioned that the largest CDS dealers were working on an exchange, and that only regulatory approval rather than legislation would be required. In March 2010, the Options Clearing Corporation (OCC) stated that it was moving forward in backing equity derivatives. In Europe, the European Market Infrastructure Regulation mandated central clearing. It is estimated that almost half of all outstanding interest rate swap transactions are centrally cleared. The systemic importance of CCPs is expected to increase further as the central clearing of standardized over-the-counter (OTC) derivatives becomes mandatory in line with commitments made by G20 leaders following the crisis. The Financial Stability Board reported in April 2013 that, as at the end of February 2013, around US$158 trillion of interest rate swaps and over US$2.6 trillion of OTC credit derivatives were centrally cleared, representing 41% and 12% respectively of total outstanding notional amounts. ==Securities (US)==
Securities (US)
DTCC's subsidiary the National Securities Clearing Corporation (NSCC) clears broker-to-broker trades using its Continuous Net Settlement (CNS) System. This has acted as a CCP, long before the term was coined. In order to deal with the default of a member broker, as happened with Drexel Burnham and Lehman Brothers, DTCC has a guarantee fund to which all broker members contribute. It also has rules to handle the gains and losses from a defaulting broker. The guarantee fund ensures that settlement can be completed. A defaulting member's contribution to the fund, along with any other assets held by the depository, are used to absorb any losses at the time of default. The options market, with its Options Clearing Corporation (OCC), also acts as a central clearing counterparty. Its rules stipulate a five-step "waterfall" in dealing with a member's default: ==Europe==
Europe
LCH.Clearnet, the result of a merger between the London Clearing House and Clearnet, acts as a CCP for a wide variety of financial products, from equities and commodities to credit default swaps and interest rate swaps. ==Asia==
Asia
Asian countries have addressed the needs of their derivative markets by forming CCPs. Shanghai Clearing House, formed in 2009, acts as a CCP for a wide range of financial products in China. ==See also==
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