# How Do Clearing Houses Determine Which Otc Products Are Eligible for Clearing? ▴ Question

**Published:** 2025-08-22
**Categories:** Question

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![An abstract digital interface features a dark circular screen with two luminous dots, one teal and one grey, symbolizing active and pending private quotation statuses within an RFQ protocol. Below, sharp parallel lines in black, beige, and grey delineate distinct liquidity pools and execution pathways for multi-leg spread strategies, reflecting market microstructure and high-fidelity execution for institutional grade digital asset derivatives](https://options.greeks.live/wp-content/uploads/2025/08/institutional-digital-asset-derivatives-rfq-protocol-displaying-multi-leg-execution-status-and-optimal-liquidity-pathways.jpg)

## Concept

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## The Calculus of Systemic Stability

A clearing house’s determination of which over-the-counter (OTC) products are eligible for clearing is a foundational process of modern financial market structure. This decision framework is a complex calculus of [risk management](https://prime.greeks.live/area/risk-management/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite), operational capacity, and legal certainty, designed to absorb and neutralize [counterparty credit risk](https://prime.greeks.live/area/counterparty-credit-risk/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite) that would otherwise permeate the financial system. The process begins not with a simple checklist, but with a systemic question ▴ can this instrument be standardized to a degree that its risk can be reliably modeled, priced, and managed under duress? Answering this question involves a rigorous evaluation of a product’s intrinsic characteristics against the clearing house’s capacity to act as the ultimate guarantor for every cleared trade.

The core function of a [central counterparty](https://prime.greeks.live/area/central-counterparty/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite) ([CCP](https://prime.greeks.live/area/ccp/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite)) is to become the buyer to every seller and the seller to every buyer, thereby severing the direct credit linkage between the original trading counterparties. This substitution is only feasible for products that possess a high degree of contractual and operational uniformity. Ambiguity is the enemy of central clearing. Therefore, the initial phase of assessment centers on a product’s potential for standardization.

This involves defining immutable contract specifications, such as notional amounts, coupon rates, tenors, and settlement procedures, into a format that is fungible and operationally manageable at scale. Without this baseline of uniformity, the CCP cannot build the robust risk models and [default management](https://prime.greeks.live/question/how-does-a-central-counterpartys-default-waterfall-function-during-a-member-default/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite) procedures that are the bedrock of its function.

> The eligibility of an OTC product for clearing hinges on the ability to transform its bespoke nature into a standardized instrument whose risks can be mathematically modeled and operationally managed by the central counterparty.

This process is fundamentally a balancing act. On one side, there is market demand for clearing services to reduce bilateral credit risk and improve capital efficiency. On the other, the CCP has a mandate to preserve the integrity of the clearing system itself.

Accepting a product that is too complex, illiquid, or difficult to price would introduce systemic risk into the heart of the market’s safety net. Consequently, clearing houses maintain detailed eligibility manuals that outline the specific criteria for each asset class, ensuring that every product admitted to the clearing ecosystem contributes to, rather than detracts from, overall financial stability.

![Abstract geometric planes, translucent teal representing dynamic liquidity pools and implied volatility surfaces, intersect a dark bar. This signifies FIX protocol driven algorithmic trading and smart order routing](https://options.greeks.live/wp-content/uploads/2025/07/optimized-institutional-digital-asset-derivatives-rfq-liquidity-aggregation.jpg)

![A slender metallic probe extends between two curved surfaces. This abstractly illustrates high-fidelity execution for institutional digital asset derivatives, driving price discovery within market microstructure](https://options.greeks.live/wp-content/uploads/2025/07/precision-instrument-navigating-institutional-digital-asset-derivatives-rfq-protocols-for-optimal-price-discovery-and-high-fidelity-execution.jpg)

## Strategy

![A sleek metallic teal execution engine, representing a Crypto Derivatives OS, interfaces with a luminous pre-trade analytics display. This abstract view depicts institutional RFQ protocols enabling high-fidelity execution for multi-leg spreads, optimizing market microstructure and atomic settlement](https://options.greeks.live/wp-content/uploads/2025/07/advanced-institutional-digital-asset-derivatives-rfq-protocol-engine-for-high-fidelity-execution-and-market-microstructure-analysis.jpg)

## Pillars of the Eligibility Framework

Clearing houses employ a multi-faceted strategic framework to evaluate OTC products for clearing eligibility. This framework is built upon several core pillars, each designed to ensure that a product can be seamlessly integrated into the CCP’s risk management and operational systems. The primary objective is to guarantee that, in the event of a member’s default, the CCP can manage the defaulted portfolio with a high degree of confidence and minimal market disruption. This requires a holistic assessment of the product’s lifecycle, from trade execution to final settlement.

![Abstract visualization of institutional digital asset derivatives. Intersecting planes illustrate 'RFQ protocol' pathways, enabling 'price discovery' within 'market microstructure'](https://options.greeks.live/wp-content/uploads/2025/07/digital-asset-rfq-execution-liquidity-pool-market-microstructure-protocol.jpg)

## Product Standardization and Legal Certainty

The first strategic pillar is the rigorous standardization of contract terms. An OTC product must be definable under a master agreement framework, such as the ISDA Master Agreement for swaps, with minimal room for bespoke modifications. The goal is to create fungible instruments that can be netted against each other and, if necessary, auctioned to other [clearing members](https://prime.greeks.live/question/can-the-collective-action-of-clearing-members-effectively-veto-a-flawed-margin-model-proposal-from-a-ccp/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite) in a predictable manner. This involves a granular analysis of the product’s specifications.

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**Contractual Terms** ▴ The product must have unambiguous terms regarding its notional value, currency, maturity date, reference rates, and payment calculations. For example, an interest rate swap must be based on a widely accepted reference rate (e.g. SOFR) and follow standard day-count conventions.

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**Legal Enforceability** ▴ The contractual terms must be legally robust and enforceable across relevant jurisdictions. The CCP’s legal teams conduct extensive due diligence to ensure that netting and collateral arrangements will hold up under bankruptcy or insolvency proceedings.

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**Operational [Lifecycle Events](https://prime.greeks.live/question/what-are-the-primary-challenges-of-managing-lifecycle-events-across-different-asset-classes/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite)** ▴ The product’s lifecycle events, such as coupon payments, fixings, and settlement procedures, must be standardized and automatable. This reduces operational risk and ensures timely processing of millions of transactions.

![Two smooth, teal spheres, representing institutional liquidity pools, precisely balance a metallic object, symbolizing a block trade executed via RFQ protocol. This depicts high-fidelity execution, optimizing price discovery and capital efficiency within a Principal's operational framework for digital asset derivatives](https://options.greeks.live/wp-content/uploads/2025/07/precision-execution-bridging-institutional-liquidity-pools-via-rfq-protocol-for-optimized-digital-asset-derivatives-price-discovery.jpg)

## Risk Modeling and Margin Methodology

A second critical pillar is the CCP’s ability to model and manage the product’s market risk. This requires a robust quantitative framework and access to reliable [market data](https://prime.greeks.live/area/market-data/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite). The CCP must be able to calculate initial and variation margin requirements that accurately reflect the potential future exposure of the product.

### Table 1 ▴ Risk Model Evaluation Criteria

| Criterion | Description | Example Application (for an Interest Rate Swap) |
| --- | --- | --- |
| Price Volatility | The historical and expected future volatility of the product’s price or underlying reference rate. | Analysis of historical SOFR volatility and its expected behavior under various macroeconomic scenarios. |
| Liquidity | The depth and breadth of the market for the product, which affects the ability to liquidate a defaulted portfolio. | Assessment of bid-ask spreads and trading volumes in the interdealer swap market. |
| Data Availability | The existence of reliable and continuous pricing data from multiple sources to mark-to-market all positions. | Requirement for multiple, independent data vendor feeds for the underlying interest rate curve. |
| Correlation Risk | The product’s correlation with other instruments in the clearing system, which can create concentrated risk exposures. | Stress testing how a sharp move in interest rates would affect the value of the swap in relation to other cleared products like bond futures. |

> A product is deemed clearable only when its potential risks can be quantified through robust models and fully collateralized by a defensible margin methodology.

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## Operational and Technological Readiness

The third pillar is the operational and technological capacity of the CCP and its members to handle the product’s entire lifecycle. This involves ensuring that the necessary infrastructure is in place for trade registration, affirmation, confirmation, and settlement. The CCP evaluates its own systems as well as the ecosystem of its clearing members and third-party service providers, such as trade repositories and settlement banks.

This readiness assessment ensures that the theoretical benefits of clearing can be realized in practice without introducing unacceptable operational risks. The ability to process corporate actions, manage fixings, and handle large volumes of margin calls on a daily basis is a prerequisite for eligibility.

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## Execution

![Symmetrical, institutional-grade Prime RFQ component for digital asset derivatives. Metallic segments signify interconnected liquidity pools and precise price discovery](https://options.greeks.live/wp-content/uploads/2025/07/principals-prime-os-for-digital-asset-derivatives-rfq-execution.jpg)

## The Eligibility Assessment Protocol

The execution of a product eligibility assessment is a rigorous, multi-stage protocol undertaken by the clearing house’s risk and product development committees. This process translates the strategic pillars of standardization, risk modelability, and operational readiness into a series of concrete analytical steps. The protocol is designed to be exhaustive, ensuring that any product admitted for clearing has been thoroughly vetted from every conceivable angle.

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## Phase 1 Quantitative Feasibility Study

The initial phase involves a deep quantitative analysis to determine if the product’s risk profile is compatible with the CCP’s existing risk management framework. This is a data-intensive exercise that leverages historical market data and sophisticated modeling techniques.

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**Data Sourcing and Validation** ▴ The CCP must first establish that it can source high-quality, reliable, and continuous pricing data for the proposed product. This typically requires data from multiple independent sources to avoid reliance on a single provider and to allow for cross-validation.

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**Back-testing Margin Models** ▴ The CCP’s proposed [initial margin](https://prime.greeks.live/area/initial-margin/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite) model for the product is rigorously back-tested against historical market data. The model must be proven to cover potential losses from a member’s default with a high degree of statistical confidence (e.g. 99.7%) over a specified close-out period.

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**Stress Testing and Scenario Analysis** ▴ The product is subjected to a battery of stress tests that simulate extreme but plausible market scenarios. These scenarios may include historical events (e.g. the 2008 financial crisis) as well as forward-looking hypothetical events (e.g. a sudden and significant shift in the yield curve). The objective is to understand how the product would behave under severe market distress and to ensure the CCP’s default fund is sufficient to cover potential losses.

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## Phase 2 Operational and Legal Due Diligence

Once a product is deemed quantitatively feasible, it undergoes a thorough operational and legal review. This phase ensures that the theoretical risk models can be supported by real-world infrastructure and legal frameworks.

### Table 2 ▴ Operational Readiness Checklist

| Area | Key Assessment Points | Success Indicator |
| --- | --- | --- |
| Trade Capture | Can trades be submitted and registered in a standardized electronic format (e.g. FpML)? Are trade affirmation and confirmation platforms available and integrated? | Straight-through processing (STP) rate above 99.5%. |
| Lifecycle Management | Are systems in place to automate lifecycle events like coupon payments, resets, and corporate actions? | Full automation of all predictable lifecycle events. |
| Collateral Management | Can the CCP’s systems handle the expected volume of margin calls and collateral movements for the new product? | Ability to process end-of-day margin calls for all members within a two-hour window. |
| Default Management | Has a detailed default management plan (“fire drill”) been developed and tested for the product? Does it include a clear process for hedging and auctioning a defaulted portfolio? | Successful completion of at least two simulated default management exercises. |

> The eligibility protocol translates strategic risk principles into a granular, evidence-based execution plan, ensuring every cleared product is operationally robust and legally sound.

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## Phase 3 Member Consultation and Regulatory Approval

The final phase involves consultation with clearing members and seeking formal approval from the relevant regulatory authorities. Member consultation is critical to gauge market demand and to ensure that clearing members have the necessary systems and expertise to support the product. Following a successful member consultation, the CCP submits a formal application to its regulators (e.g. the CFTC in the U.S. or ESMA in Europe).

This application includes all the quantitative and qualitative analysis from the preceding phases, demonstrating that the product’s inclusion will not pose an undue risk to the clearing system or the broader financial market. The regulatory review process is itself a rigorous and iterative dialogue, often requiring the CCP to provide additional analysis or make adjustments to its proposed risk management procedures before final approval is granted.

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## References

- Hull, John C. Options, Futures, and Other Derivatives. Pearson, 2022.

- Gregory, Jon. Central Counterparties ▴ The Essential Guide to Clearing, Margin, and Collateral. Wiley, 2014.

- Duffie, Darrell, and Henry T. C. Hu. “Swaps, Banks, and Capital.” Yale Journal on Regulation, vol. 32, no. 1, 2015, pp. 51-93.

- Cont, Rama, and Andreea Minca. “Credit Default Swaps and the Stability of the Financial System.” Financial Stability Review, vol. 13, 2009, pp. 87-96.

- Norman, Peter. The Risk Controllers ▴ Central Counterparty Clearing in Globalised Financial Markets. Wiley, 2011.

- Pirrong, Craig. “The Economics of Central Clearing ▴ Theory and Practice.” ISDA Discussion Papers Series, no. 1, 2011.

- U.S. Commodity Futures Trading Commission. “Derivatives Clearing Organization General Provisions and Core Principles.” 17 CFR Part 39.

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## Reflection

![A robust, multi-layered institutional Prime RFQ, depicted by the sphere, extends a precise platform for private quotation of digital asset derivatives. A reflective sphere symbolizes high-fidelity execution of a block trade, driven by algorithmic trading for optimal liquidity aggregation within market microstructure](https://options.greeks.live/wp-content/uploads/2025/07/robust-institutional-platform-for-digital-asset-derivatives-rfq-protocols-and-optimized-liquidity-aggregation.jpg)

## The System as a Whole

Understanding the mechanics of product eligibility reveals a deeper truth about market structure. The decision to clear a new product is an act of system design, extending the perimeter of centralized risk management to encompass a new set of financial relationships. The extensive protocols and quantitative rigor are not merely procedural hurdles; they are the architectural specifications for financial stability. Each newly cleared product reinforces the central role of the CCP, but it also alters the network of risks the CCP must manage.

The process prompts a fundamental question for any market participant ▴ how does our own operational framework interact with this constantly evolving system of centralized control? The knowledge of these eligibility mechanics provides a lens through which to view not just individual products, but the systemic integrity of the markets themselves.

![A central RFQ engine flanked by distinct liquidity pools represents a Principal's operational framework. This abstract system enables high-fidelity execution for digital asset derivatives, optimizing capital efficiency and price discovery within market microstructure for institutional trading](https://options.greeks.live/wp-content/uploads/2025/07/prime-os-rfq-engine-optimal-execution-for-digital-asset-derivatives.jpg)

## Glossary

<a href="https://prime.greeks.live/area/counterparty-credit-risk/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
![Modular institutional-grade execution system components reveal luminous green data pathways, symbolizing high-fidelity cross-asset connectivity. This depicts intricate market microstructure facilitating RFQ protocol integration for atomic settlement of digital asset derivatives within a Principal's operational framework, underpinned by a Prime RFQ intelligence layer](https://options.greeks.live/wp-content/uploads/2025/07/modular-high-fidelity-execution-architecture-for-institutional-digital-asset-derivatives-rfq-protocol-integration-and-principals-operational-framework-optimization.jpg)

## Counterparty Credit Risk

Meaning ▴ Counterparty Credit Risk quantifies the potential for financial loss arising from a counterparty's failure to fulfill its contractual obligations before a transaction's final settlement. </a><a href="https://prime.greeks.live/area/risk-management/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
![A precise teal instrument, symbolizing high-fidelity execution and price discovery, intersects angular market microstructure elements. These structured planes represent a Principal's operational framework for digital asset derivatives, resting upon a reflective liquidity pool for aggregated inquiry via RFQ protocols](https://options.greeks.live/wp-content/uploads/2025/07/precision-engineered-institutional-digital-asset-derivatives-trading-platform-underpinning-rfq-protocol-liquidity-aggregation-and-high-fidelity-execution.jpg)

## Risk Management

Meaning ▴ Risk Management is the systematic process of identifying, assessing, and mitigating potential financial exposures and operational vulnerabilities within an institutional trading framework. </a><a href="https://prime.greeks.live/area/central-counterparty/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
![Abstract institutional-grade Crypto Derivatives OS. Metallic trusses depict market microstructure](https://options.greeks.live/wp-content/uploads/2025/07/institutional-digital-asset-derivatives-market-microstructure-optimizing-rfq-protocols-for-high-fidelity-execution-via-prime-os.jpg)

## Central Counterparty

Meaning ▴ A Central Counterparty, or CCP, functions as an intermediary in financial transactions, positioning itself between original counterparties to assume credit risk. </a><a href="https://prime.greeks.live/area/ccp/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
![A multi-layered electronic system, centered on a precise circular module, visually embodies an institutional-grade Crypto Derivatives OS. It represents the intricate market microstructure enabling high-fidelity execution via RFQ protocols for digital asset derivatives, driven by an intelligence layer facilitating algorithmic trading and optimal price discovery](https://options.greeks.live/wp-content/uploads/2025/07/institutional-digital-asset-derivatives-rfq-protocol-engine-facilitating-high-fidelity-execution-and-optimal-price-discovery.jpg)

## Ccp

Meaning ▴ A Central Counterparty, or CCP, operates as a clearing house entity positioned between two counterparties to a transaction, assuming the credit risk of both. </a><a href="https://prime.greeks.live/question/how-does-a-central-counterpartys-default-waterfall-function-during-a-member-default/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
![A sleek, disc-shaped system, with concentric rings and a central dome, visually represents an advanced Principal's operational framework. It integrates RFQ protocols for institutional digital asset derivatives, facilitating liquidity aggregation, high-fidelity execution, and real-time risk management](https://options.greeks.live/wp-content/uploads/2025/07/prime-os-rfq-protocol-engine-digital-asset-derivatives-execution.jpg)

## Default Management

A CCP's default waterfall is a pre-ordained, sequential liquidation of financial guarantees designed to neutralize a member failure and preserve market continuity. </a><a href="https://prime.greeks.live/question/can-the-collective-action-of-clearing-members-effectively-veto-a-flawed-margin-model-proposal-from-a-ccp/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
![An abstract geometric composition visualizes a sophisticated market microstructure for institutional digital asset derivatives. A central liquidity aggregation hub facilitates RFQ protocols and high-fidelity execution of multi-leg spreads](https://options.greeks.live/wp-content/uploads/2025/07/optimized-rfq-execution-framework-for-digital-asset-derivatives-trading.jpg)

## Clearing Members

Clearing members can effectively veto a flawed CCP margin model through coordinated, evidence-based action within governance and regulatory frameworks. </a><a href="https://prime.greeks.live/question/what-are-the-primary-challenges-of-managing-lifecycle-events-across-different-asset-classes/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
![Abstract clear and teal geometric forms, including a central lens, intersect a reflective metallic surface on black. This embodies market microstructure precision, algorithmic trading for institutional digital asset derivatives](https://options.greeks.live/wp-content/uploads/2025/07/institutional-digital-asset-derivatives-rfq-protocol-execution-prime-os.jpg)

## Lifecycle Events

Managing cross-asset lifecycle events is an architectural challenge of harmonizing fragmented data and processes into a single, automated operational system. </a><a href="https://prime.greeks.live/area/market-data/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
![Sharp, intersecting metallic silver, teal, blue, and beige planes converge, illustrating complex liquidity pools and order book dynamics in institutional trading. This form embodies high-fidelity execution and atomic settlement for digital asset derivatives via RFQ protocols, optimized by a Principal's operational framework](https://options.greeks.live/wp-content/uploads/2025/07/institutional-grade-digital-asset-derivatives-market-microstructure-high-fidelity-execution-across-multi-leg-spread-rfq-protocol-orchestration-within-principals-operational-framework.jpg)

## Market Data

Meaning ▴ Market Data comprises the real-time or historical pricing and trading information for financial instruments, encompassing bid and ask quotes, last trade prices, cumulative volume, and order book depth. </a><a href="https://prime.greeks.live/area/initial-margin/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
![A pristine white sphere, symbolizing an Intelligence Layer for Price Discovery and Volatility Surface analytics, sits on a grey Prime RFQ chassis. A dark FIX Protocol conduit facilitates High-Fidelity Execution and Smart Order Routing for Institutional Digital Asset Derivatives RFQ protocols, ensuring Best Execution](https://options.greeks.live/wp-content/uploads/2025/08/institutional-grade-digital-asset-derivatives-rfq-protocols-optimizing-high-fidelity-execution-via-prime-os-intelligence.jpg)

## Initial Margin

Meaning ▴ Initial Margin is the collateral required by a clearing house or broker from a counterparty to open and maintain a derivatives position. </a>

**Tags:** [Initial Margin](https://options.greeks.live/area/initial-margin/), [Financial Market Infrastructure](https://options.greeks.live/area/financial-market-infrastructure/), [Regulatory Capital](https://options.greeks.live/area/regulatory-capital/), [Interest Rate Swaps](https://options.greeks.live/area/interest-rate-swaps/), [Clearing Eligibility](https://options.greeks.live/area/clearing-eligibility/), [Counterparty Credit Risk](https://options.greeks.live/area/counterparty-credit-risk/)	

## Discover More

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### [How Does the CCPs Capital Contribution Affect Margin Requirements for Members?](https://options.greeks.live/question/how-does-the-ccps-capital-contribution-affect-margin-requirements-for-members/)
![An abstract system depicts an institutional-grade digital asset derivatives platform. Interwoven metallic conduits symbolize low-latency RFQ execution pathways, facilitating efficient block trade routing. Circular voids represent interconnected liquidity pools, enabling robust price discovery.](https://options.greeks.live/wp-content/uploads/2025/07/institutional-digital-asset-derivatives-prime-os-rfq-execution-engine.jpg)

A CCP's capital contribution directly impacts member margin by absorbing tail risk, enabling more efficient and stable margin models.

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### [How Does Central Clearing Impact Counterparty Risk in Derivatives Trading?](https://options.greeks.live/question/how-does-central-clearing-impact-counterparty-risk-in-derivatives-trading/)
![A central illuminated hub with four light beams forming an 'X' against dark geometric planes. This embodies a Prime RFQ orchestrating multi-leg spread execution, aggregating RFQ liquidity across diverse venues for optimal price discovery and high-fidelity execution of institutional digital asset derivatives.](https://options.greeks.live/wp-content/uploads/2025/07/institutional-digital-asset-derivatives-rfq-protocol-engine-orchestrating-high-fidelity-execution-and-optimal-price-discovery.jpg)

Central clearing transforms counterparty risk by novating bilateral trades, replacing individual exposures with a single, collateralized obligation to a regulated CCP.

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### [How Does Central Clearing Reduce Systemic Risk in Derivatives Markets?](https://options.greeks.live/question/how-does-central-clearing-reduce-systemic-risk-in-derivatives-markets/)
![A refined object, dark blue and beige, symbolizes an institutional-grade RFQ platform. Its metallic base with a central sensor embodies the Prime RFQ Intelligence Layer, enabling High-Fidelity Execution, Price Discovery, and efficient Liquidity Pool access for Digital Asset Derivatives within Market Microstructure.](https://options.greeks.live/wp-content/uploads/2025/08/prime-os-rfq-protocols-for-digital-asset-derivatives-execution.jpg)

Central clearing mitigates systemic risk by substituting a central counterparty for bilateral exposures, thereby breaking the chain of contagion.

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### [How Do Central Clearing Houses Mitigate Wrong-Way Risk for Their Members?](https://options.greeks.live/question/how-do-central-clearing-houses-mitigate-wrong-way-risk-for-their-members/)
![A central mechanism of an Institutional Grade Crypto Derivatives OS with dynamically rotating arms. These translucent blue panels symbolize High-Fidelity Execution via an RFQ Protocol, facilitating Price Discovery and Liquidity Aggregation for Digital Asset Derivatives within complex Market Microstructure.](https://options.greeks.live/wp-content/uploads/2025/07/prime-os-rfq-engine-for-digital-asset-derivatives-best-execution.jpg)

CCPs mitigate wrong-way risk by enforcing strict, diversified collateral policies and dynamic margining to sever correlation between member default and exposure.

- 
### [What Is the Role of a CCP’s Skin-In-The-Game in the Default Waterfall?](https://options.greeks.live/question/what-is-the-role-of-a-ccps-skin-in-the-game-in-the-default-waterfall/)
![A precise, multi-layered disk embodies a dynamic Volatility Surface or deep Liquidity Pool for Digital Asset Derivatives. Dual metallic probes symbolize Algorithmic Trading and RFQ protocol inquiries, driving Price Discovery and High-Fidelity Execution of Multi-Leg Spreads within a Principal's operational framework.](https://options.greeks.live/wp-content/uploads/2025/07/institutional-grade-rfq-protocol-mechanism-for-digital-asset-derivatives-price-discovery-and-high-fidelity-execution-via-prime-os.jpg)

SITG is a CCP's own capital at risk in the default waterfall, a critical mechanism that aligns its financial incentives with robust risk management.

- 
### [How Do Central Counterparties Quantify and Manage the Risk of Illiquid Cleared Products?](https://options.greeks.live/question/how-do-central-counterparties-quantify-and-manage-the-risk-of-illiquid-cleared-products/)
![A central RFQ engine flanked by distinct liquidity pools represents a Principal's operational framework. This abstract system enables high-fidelity execution for digital asset derivatives, optimizing capital efficiency and price discovery within market microstructure for institutional trading.](https://options.greeks.live/wp-content/uploads/2025/07/prime-os-rfq-engine-optimal-execution-for-digital-asset-derivatives.jpg)

CCPs manage illiquid product risk via enhanced margining, specialized default auctions, and robust operational playbooks.

- 
### [What Are the Regulatory Frameworks Governing the Minimum Required Skin in the Game for CCPs?](https://options.greeks.live/question/what-are-the-regulatory-frameworks-governing-the-minimum-required-skin-in-the-game-for-ccps/)
![Multi-faceted, reflective geometric form against dark void, symbolizing complex market microstructure of institutional digital asset derivatives. Sharp angles depict high-fidelity execution, price discovery via RFQ protocols, enabling liquidity aggregation for block trades, optimizing capital efficiency through a Prime RFQ.](https://options.greeks.live/wp-content/uploads/2025/07/digital-asset-derivatives-rfq-protocol-liquidity-aggregation-engine.jpg)

A CCP's "skin in the game" is a mandated capital layer in the default waterfall that aligns its incentives with market stability.

- 
### [How Does Multilateral Netting at a Ccp Impact a Firm’s Capital Efficiency?](https://options.greeks.live/question/how-does-multilateral-netting-at-a-ccp-impact-a-firms-capital-efficiency/)
![Sleek, dark components with a bright turquoise data stream symbolize a Principal OS enabling high-fidelity execution for institutional digital asset derivatives. This infrastructure leverages secure RFQ protocols, ensuring precise price discovery and minimal slippage across aggregated liquidity pools, vital for multi-leg spreads.](https://options.greeks.live/wp-content/uploads/2025/07/institutional-digital-asset-rfq-protocol-systemic-execution-interface.jpg)

Multilateral netting at a CCP consolidates myriad exposures into one, drastically cutting margin needs and regulatory capital charges.

- 
### [What Is the Role of a CCPs Skin in the Game in the Default Waterfall?](https://options.greeks.live/question/what-is-the-role-of-a-ccps-skin-in-the-game-in-the-default-waterfall-2/)
![Precision metallic bars intersect above a dark circuit board, symbolizing RFQ protocols driving high-fidelity execution within market microstructure. This represents atomic settlement for institutional digital asset derivatives, enabling price discovery and capital efficiency. The Prime RFQ underpins algorithmic trading, minimizing latency.](https://options.greeks.live/wp-content/uploads/2025/08/institutional-digital-asset-derivatives-rfq-protocol-execution-precision-systemic-framework.jpg)

A CCP's Skin in the Game is its own capital placed at risk to align its incentives with members and ensure robust risk management.

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---

**Original URL:** https://options.greeks.live/question/how-do-clearing-houses-determine-which-otc-products-are-eligible-for-clearing/
