We live in volatile times. Last week a Chinese steel producer Tsingshan Holding Group was reported to face an $8 billion paper loss because of skyrocketing nickel prices.
Periods like this highlight the importance of central counterparties (CCP) that sit between buyers and sellers in financial markets to provide a buffer in case of default. While only three CCPs have ever failed, all three failures occurred in circumstances similar to the current market climate.
Hence it’s an opportune time to explore the fragility of CCPs. And whether or not there’s a better alternative.
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