CCP

WHAT IS THIS? A central counterparty (CCP) manages default risk by collecting initial and variation margin from both parties to a trade. Spill-over losses are absorbed via a default fund to which all members contribute – introducing a degree of mutualised risk – and by the CCP’s own capital. The concept is an old one that was extended to over-the-counter derivatives in the aftermath of the financial crisis.

Rocked by counterparty risk

The demise of Lehman Brothers has triggered fresh concerns about counterparty risk, creating a wave of novations and forcing dealers to think harder about the possibility of another major derivatives counterparty defaulting. Mark Pengelly reports

EC demands centralised clearing by year end

At a meeting with industry groups and regulators on October 22, the European Commissioner for internal markets and services, Charlie McCreevy, outlined his intentions to move credit derivatives away from the over-the-counter (OTC) market and under…

On thin ice

Following the near-collapse of Bear Stearns, even trades conducted with interbank dealers can no longer be considered risk-free. With so much of the derivatives market concentrated in the hands of a few dealers, what would happen if a major counterparty…

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