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Central counterparty (CCP)
Also called CCP, clearing house. A FRM term, defined in plain English with the distinction examiners test.
What it means
An entity that interposes itself between the two sides of a trade, becoming buyer to the seller and seller to the buyer.
The exam angle
Concentrates counterparty risk rather than removing it. A CCP is itself systemically important, which is why its default waterfall and margin model matter.
Where it appears in the syllabus
- Financial Markets & ProductsFRM Part I · exam weight 30% · Institutions, market structure, futures, swaps, options, rates, FX, MBS.
- Current Issues in Financial MarketsFRM Part II · exam weight 10% · This cycle's readings — AI in finance, climate risk, digital assets, bank stress.
Related terms
- Basis riskThe risk that a hedge and the exposure it hedges do not move together, leaving a residual.
- Contango and backwardationContango is a futures price above the spot price; backwardation is a futures price below it.
- Counterparty credit riskThe risk that the other side of a derivative defaults before settling, when the contract has positive value to you.
- DerivativeA contract whose value depends on the price of something else — an asset, a rate, an index or an event.
- Forward contractA private agreement to buy or sell an asset at a set price on a future date.
- Futures contractA standardised, exchange-traded forward, marked to market daily through a clearing house.
Educational content only. This is not financial, investment, legal or regulatory advice. Check the official curriculum for your own exam before relying on any definition here.
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