Systemic risk safeguards for central counterparties

The financial crisis of 2008 underscored the critical importance of central counterparties (CCPs) in mitigating systemic risk within the derivatives market. CCPs function as intermediaries, assuming counterparty risk to enhance market stability. This paper explores the comprehensive CCP risk waterfall framework, evaluates its robustness under prolonged market stress and provides actionable recommendations for fortifying CCP resilience. Through theoretical models and empirical simulations, the paper illustrates how CCPs manage systemic shocks and proposes improvements for future robustness. This article is also included in The Business & Management Collection which can be accessed at https:// hstalks.com/business/.