Policymakers, researchers, and practitioners discuss the role of central counterparties

Central counterparties (CCPs) are structures that help facilitate the clearing and settlement process in financial markets. They have long been utilized in the derivatives markets, more recently have been adopted in cash securities markets, and currently are experiencing a growing interest in a furt...

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Bibliographic Details
Published in:Economic perspectives (1989) 2006-10, Vol.30 (4), p.2
Main Authors: Evanoff, Douglas D, Russo, Daniela, Steigerwald, Robert S
Format: Article
Language:English
Subjects:
Derivatives
Economic policy
Investment policy
Liquidity
Manycountries
Risk
Online Access:Get full text
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Summary:Central counterparties (CCPs) are structures that help facilitate the clearing and settlement process in financial markets. They have long been utilized in the derivatives markets, more recently have been adopted in cash securities markets, and currently are experiencing a growing interest in a further expansion of their use. Typical examples of CCPs in the U.S. include the clearinghouses for the derivatives markets in Chicago - the Chicago Mercantile Exchange Clearing House, the Options Clearing Corporation, and the Clearing Corporation. Examples in the European Union include LCH.Clearnet and Eurex Clearing. What are the benefits associated with CCPs? If properly structured, they can offer more effective risk-management procedures than is possible in markets that do not use central clearing and settlement arrangements, resulting in superior safety and soundness. This, in turn, can lead to increased liquidity and deeper markets. How are these gains realized? The CCP interposes itself between the counterparties to a financial contract. Thus, the CCP becomes the counterparty to each side of the contract.
ISSN:1048-115X
2163-3584