CCPs require a pre-set amount of collateral — referred to as ‘initial margin’ — to be posted to the CCP by each party in a transaction.
For instance, a CCP may increase initial margin requirements in response to high price volatility.
As the CCP concentrates the risk of settlement failures into itself and is able to isolate the effects of a failure of a market participant, it also needs to be properly managed and well-capitalized[4] in order to ensure its survival in the event of a significant adverse event, such as a large clearing firm defaulting.
[7] In the United States, as part of the Obama financial regulatory reform plan of 2009, pressure has been placed on traders of derivatives such as credit default swaps (CDS) to make their trades on an open exchange with a clearinghouse.
In June 2009, Federal Reserve official Alfred Kohn mentioned that the largest CDS dealers were working on an exchange, and that only regulatory approval rather than legislation would be required.
[9] In March 2010, the Options Clearing Corporation (OCC) stated that it was moving forward in backing equity derivatives.
The systemic importance of CCPs is expected to increase further as the central clearing of standardized over-the-counter (OTC) derivatives becomes mandatory in line with commitments made by G20 leaders following the crisis.
Shanghai Clearing House, formed in 2009, acts as a CCP for a wide range of financial products in China.