The Global Risks Alliance (GRA)
Clearing and settlement turn a trade into a final transfer of securities and cash. Central counterparties stand between buyers and sellers, collect margin and mutualise default losses; central securities depositories and settlement systems move ownership. Concentrating risk in these infrastructures makes it easier to manage and harder to escape. This page sets out how risk builds and propagates in clearing and settlement, how it is disclosed, and who decides on its management.
GRA · Established · service level R0
Clearing and settlement is the process that turns a trade into a final transfer of securities and cash. Central counterparties stand between buyers and sellers, collect margin and mutualise default losses, while depositories and settlement systems complete delivery. They reduce counterparty risk and concentrate it in a few nodes.
How a failure at one financial centre can spread through settlement links. Design links, not real dependencies.
The working screen behind this subject: its structure, terms and states. Names are placeholders and values illustrative.
Clearing and settlement · Bond market · Session 2
vs largest two members' default, illustrative
| Settlement fails | 64 | ▲ 28 | Normal |
| Margin calls intraday | 3 | ▲ 3 | Elevated |
| Surveillance alerts | 84 | ▼ 16 | Triage |
Central counterparties and operations. The dossier below sets out how the risk develops, what is measured, where the data come from, how it is modelled and who decides.
Initial margin models respond to volatility, so a shock raises requirements when participants are least able to meet them. Anti-procyclicality tools, buffers and floors trade smaller jumps in stress against higher margin in calm periods.
If a clearing member defaults, the central counterparty uses the defaulter's margin and default fund contribution, then its own dedicated capital, then surviving members' contributions, then recovery tools. Each layer moves losses to a different set of firms.
A small number of large banks are members of most major central counterparties, and many infrastructures depend on the same settlement banks, custodians and payment systems. A failure at one node can reach several infrastructures at once.
Outages, cyber incidents or failed deliveries delay settlement, leave exposures open and create sudden liquidity needs. Shorter settlement cycles cut counterparty exposure but leave less time to match, fund and correct trades.
Each term as this page uses it. Where a standard-setting body defines the term, the wording follows that body.
| Term | Definition |
|---|---|
| Default waterfall | The order in which a central counterparty uses resources to cover a member's default, from its margin to the default fund and CCP capital. |
| Cover two | A standard that a systemically important CCP hold resources to withstand the default of its two largest members. |
| Procyclical margin | Margin that rises sharply in stress, draining liquidity when it is scarcest. |
Each indicator carries its unit, its cadence, the kind of source behind it and the evidence label a value would carry. No values are shown: a programme supplies them under its own authority.
| Indicator | Unit | Cadence | Source type | Label |
|---|---|---|---|---|
| Initial margin held | currency units by product class | quarterly | CCP public quantitative disclosures | REPORTED |
| Default fund size and coverage standard | currency units; cover one or cover two | quarterly | CCP public quantitative disclosures | REPORTED |
| Margin model backtesting exceptions | count per period | quarterly | CCP public quantitative disclosures | REPORTED |
| Initial margin concentration among the largest clearing members | share of total initial margin | quarterly | CCP public quantitative disclosures | REPORTED |
| Peak intraday variation margin call | currency units | quarterly | CCP public quantitative disclosures | REPORTED |
| Settlement fails rate | share of settlement instructions by value and by volume | monthly | Central securities depository and regulator reports | OFFICIAL |
| Core system availability | share of scheduled operating time | quarterly | Infrastructure disclosures and incident reports | REPORTED |
The topic as a computational graph: named sources feed the methods, an evidence review gates the outputs, and the decisions stay with the authorities that hold them.
Fig. 02Nodes carry their type, two metric rows and a state; connectors show what feeds what; dashed frames name the owners; the timeline is the cadence. Design of the pipeline, not a record of a run.
Named public datasets and institutional records, each with its licence class. Sources by agreement are used only under their terms and never republished.
| Source | What it gives | Licence class |
|---|---|---|
| CCP public quantitative disclosures under the CPMI-IOSCO standard | Margin, default resources, stress testing, backtesting and concentration published by each central counterparty | Public disclosure, terms per CCP |
| ESMA EU-wide CCP stress test reports | Results and methods of supervisory stress tests of EU central counterparties | Free, reuse with attribution under the ESMA legal notice |
| CPMI statistics on payments and financial market infrastructures | Values and volumes processed by payment, clearing and settlement systems by jurisdiction | Free, BIS terms of use with attribution |
| SEC fails-to-deliver data | Securities with fails to deliver at the US registered clearing agency | Public domain, US government records |
| CFTC derivatives clearing organization reports | Margin and clearing information for registered derivatives clearing organizations | Public domain, US government records |
| FSB reports on central counterparty resolution | Resolution planning, financial resources and policy for systemically important central counterparties | Free, FSB terms of use |
Capital Markets Nexus prepares evidence. The decisions below are taken by the authorities named, under their own rules, and never by the platform.
| Who decides | The question | Evidence this page serves |
|---|---|---|
| Central counterparties and their risk committees | How to calibrate margin models, default fund size and anti-procyclicality tools | Backtesting, stress testing and margin call evidence from public disclosures |
| Securities regulators and FMI overseers | Whether a central counterparty or settlement system meets the PFMI and national rules | Disclosure-based indicators read against the PFMI principles |
| Central banks | Whether to grant central counterparties access to central bank accounts or liquidity facilities | Liquidity needs, settlement bank dependencies and concentration evidence |
| Resolution authorities | What resources and tools are available if a central counterparty cannot recover | Default waterfall structure and published resolution planning reports |
Central clearing reduces bilateral counterparty risk through netting and collateral, and became mandatory for many standardised derivatives after the global financial crisis. In exchange, it concentrates risk in CCPs. A CCP collects initial margin, calls variation margin as prices move and maintains a default fund and other resources, applied in a defined order, often called the default waterfall, if a member fails.
Margin rises when volatility rises, so CCPs can demand large amounts of cash at the moment liquidity is scarcest. Members are often members of several CCPs, creating links between them. Operational failures, from software errors to cyber attacks, could halt settlement across markets. Shorter settlement cycles reduce counterparty exposure but compress the time available to fix errors and arrange funding.
Infrastructures publish quantitative disclosures under international principles, analysed with financial economics and macro-finance. Disclosures are standardised but not fully granular.
Studying how margin models respond to volatility, using econometrics. Models differ between CCPs.
Mapping links between CCPs and members, with network science and contagion. Full membership exposures are confidential.
Mapping technology and third-party dependencies, informed by payment and financial market technology.
The current service level is R0: information and enquiries. An enquiry receives a reference and names the next step; applications, payments, compute allocations and registrations open only when their team, terms and review capacity exist.