Journal of Financial Market Infrastructures

Skin in the game: central counterparty risk controls and incentives

Louise Carter and Megan Garner

  • CCP risk management frameworks must be transparent and participants must have appropriate input 
  • A CCP's skin in the game should be a material portion of its own capital 
  • This holds regardless of how material the CCP's contribution is relative to the default fund
  • A CCP's capital should be used first to absorb any losses in excess of a defaulter's collateral 


The increasing systemic importance of central counterparties (CCPs) has seen recent policy debates focus on the ability of CCPs to withstand a crisis effectively. CCPs maintain prefunded financial resources to cover the potential losses arising from the default of a clearing participant. This paper discusses the incentives created by the composition of these resources, and draws out the role of transparency and governance in ensuring these incentives are effective.

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