- Prevention of Financial Market’s Systemic Risk
- If and when a financial company goes bankrupt, the CCP makes the settlement for the company, preventing systemic risk of spreading to other financial companies.
- Reducing Settlement Risk by Netting and Mitigating Counterparty Risks
- The clearing organization becomes a buyer to sellers and a seller to buyers, assuming the responsibility of settlement.
- Reducing Burden of Participants’ Settlement Works
As the settlement is centralized to and netted by the CCP, related operational burden is reduced.
- Clearing mechanism contributes to the development of the OTC derivatives market
- Promoting transactions and facilitating the standardization of the OTC market by mitigating counterparty risk.
- In addition, the CCP service provides some merits regarding the equity capital requirements on the counterparty risk by the Basel agreements
- Risk weight of 2% is applied to transactions with a qualifying CCP.