Role of a CCP

A central counterparty (CCP) clearing house acts as a go-between when two parties trade. Once the trade is made, any monetary risk involved is borne by the CCP, acting as guarantor for the trade.

Once the CCP registers a trade, it becomes the CCP to the buying and selling members by a legal process known as novation or open offer.

As CCP, LCH.Clearnet ensures the financial performance of the trades through to delivery. To assess and control the risk associated with its role as central counterparty, LCH.Clearnet has a comprehensive risk management approach.

The risk management approach allows early identification of customers who might be unable to fulfil their obligations. The clearing members’ first line of protection comes from the collection of daily variation margin and is augmented by the collection of initial margin, which provides protection to LCH.Clearnet against the the default of a clearing member.