Central Counterparty Clearing House
a.k.a. CCP, Clearing house
An institution that steps between buyer and seller, becoming the buyer to every seller and the seller to…
In plain English
An institution that steps between buyer and seller, becoming the buyer to every seller and the seller to every buyer, to guarantee trades.
A central counterparty (CCP) removes the worry that the other side of your trade will go bust. Once a trade is cleared, both parties face the CCP instead of each other.
To protect itself, the CCP collects margin and keeps a default fund. Exchange-traded futures go through CCPs, and after 2008 many over-the-counter derivatives were pushed into them too.
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