A Central Counterparty Clearing House (CCP) is a financial institution that acts as an intermediary between buyers and sellers in derivatives and securities markets. It reduces counterparty risk by becoming the buyer to every seller and the seller to every buyer, ensuring trades are settled even if one party defaults. CCPs became increasingly important after the 2008 financial crisis, with regulators mandating central clearing for many standardized derivatives contracts.
Example
“All standardized interest rate swaps must now be processed through a central counterparty clearing house to reduce systemic risk in the financial system.”