A financial institution that assumes counterparty credit risk between parties to a transaction- that is, it takes on the credit risk of one counterparty to the protection of the other. It also provides clearing and settlement services for transactions in foreign exchange, securities, and derivative contracts.
The central counterparty intermediates in the settlement process between counterparties (to transactions involving financial instruments), becoming the buyer to every seller, and the seller to every buyer in a given market.
It is also known as a central clearing counterparty (CCP).
