clearing

Central clearing was extended after the financial crisis because it removes counterparty risk from the network. It does not remove it from the system: it concentrates it in a small number of institutions that are now indispensable. This lesson assesses what was gained, what was created, and how to read any infrastructure change for the risk it relocates.

A CCP takes the other side of every trade, which means one member's failure becomes its problem and therefore everyone's. This lesson covers how it survives that: the margin it collects, the ordered stack of resources it burns through in a default, and the deliberate design choice of putting its own capital ahead of the mutualised fund.

A trade is agreed in microseconds and completed days later. In between, both sides hold a promise rather than an asset, and either could fail. This lesson builds the trade lifecycle, explains why the gap exists at all, and introduces the legal manoeuvre that lets a stranger's creditworthiness stop being your problem.