The Central Counterparty (CCP), BME CLEARING, acts as the buyer of the seller and the seller of the buyer in any trade traded on the exchange, bilaterally, adjustments in corporate events, fails, etc.
BME CLEARING puts itself before both counterparties, performing registration, central counterparty, clearing and settlement functions.
When interposed, several risks affect the CCP. The main one would be the counterparty risk, also called credit risk.
But as said above, there are also other risks, as for example liquidity risk, operational risk, legal risk or even market risk, because in case of a Client or Member default, would be the CCP the one in charge of the defaulting portfolio, incurring in market risk.
The main purpose of BME CLEARING is to eliminate the counterparty risk and to ensure the transactions are completed successfully.
The counterparty risk is fully transferred to BME CLEARING. So, how its safeguard itself?
In order to perform its duty, BME CLEARING establish solvency requirements for Members based on their category in the CCP, BME CLEARING require the posting of margins, applies Variation Margin in Futures and xRolling contracts, sets Risk and Margin Call Limits, performs stress tests for margin calculation and follows the Default Waterfall in case of default.