Definitions for central counterparty clearing
cen·tral coun·ter·party clear·ing

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1. Central counterparty clearing

   A central clearing counterparty (CCP), also referred to as a central counterparty, is a financial institution 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. CCPs "mutualize" (share among their members) counterparty credit risk in the markets in which they operate. A CCP reduces the settlement risks by netting offsetting transactions between multiple counterparties, by requiring collateral deposits (also called "margin deposits"), by providing independent valuation of trades and collateral, by monitoring the credit worthiness of the member firms, and in many cases, by providing a guarantee fund that can be used to cover losses that exceed a defaulting member's collateral on deposit. CCPs require a pre-set amount of collateral — referred to as ‘initial margin’ — to be posted to the CCP by each party in a transaction. It is the first line of defense is collateral provided by the defaulting member. CCPs typically adjust initial margin demands in response to changes in market conditions. For instance, a CCP may increase initial margin requirements in response to high price volatility. Variation margin is the second line of defense which is fluctuation in the price of security which we pledge. If the price of security which member pledge reduces, member has to deposit cash to that amount and if the price of security goes up, member is able to withdraw cash to that extend. This is done either on a daily basis or sometimes more frequently. For some financial products, members’ net payment obligations to or from the CCP are settled on a daily basis (or more frequently if there are large movements during the course of the day) to prevent the build-up of large exposures. The advantages of a central counterparty clearing arrangement are greater transparency of the risks, reduced processing costs, and greater certainty in cases of default by a member. Once a trade has been executed by two counterparties, it is submitted to a clearing house, which then steps between the two original traders' clearing firms and assumes the legal counterparty risk for the trade. For example, a trade between member firm A and firm B becomes two trades: A-CCP and CCP-B. This process is called novation. As the CCP concentrates the risk of settlement failures into itself and is able to isolate the effects of a failure of a market participant, it also needs to be properly managed and well-capitalized in order to ensure its survival in the event of a significant adverse event, such as a large clearing firm defaulting. Guarantee funds are capitalized with collateral from the member firms and own capital, called 'skin-in-the-game' of the CCP. In the event of a settlement failure, the defaulting firm may be declared to be in default and the CCP's default procedures utilized, which may include the orderly liquidation of the defaulting firm's positions and collateral. In the event of a significant clearing firm failure, the CCP may draw on its guarantee fund in order to settle trades on behalf of the failed clearing firm. Nonetheless, it is possible that, in extreme circumstances, CCPs could be a source of systemic risk.

How to pronounce central counterparty clearing?

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Numerology

1. Chaldean Numerology

   The numerical value of central counterparty clearing in Chaldean Numerology is: 4

2. Pythagorean Numerology

   The numerical value of central counterparty clearing in Pythagorean Numerology is: 3

References

1. ^ Wikipedia
   https://en.wikipedia.org/wiki/Central_Counterparty_Clearing