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Answer: c) A central counterparty (CCP) that intermediates the original futures contract counterparties (long and short), becoming a counterparty to both
A clearinghouse in futures markets acts as a **central counterparty (CCP)**. Through novation, it steps between the original long and short counterparties and becomes the buyer to every seller and the seller to every buyer. This structure reduces bilateral default risk and supports the daily mark-to-market and margining process.
Author: Manit Arora
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Question 145.1. A clearinghouse is:
A
a) The exchange that provides the exchange-trading mechanism and the associated price transparency
B
b) The firm that contains warehouse lenders to fund the brokers in the case of futures contract defaults
C
c) A central counterparty (CCP) that intermediates the original futures contract counterparties (long and short), becoming a counterparty to both
D
d) The firm that records and tracks the status of bilateral over the counter (OTC) trades between futures contract counterparties
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