Because of its role in fostering a sound financial system, the Federal Reserve Bank of Chicago has taken a keen interest in clearing and settlement systems for derivatives products, in particular, the risk-management, banking and payment systems that support such clearing and settlement systems.  The Seventh Federal Reserve District is home to over half a dozen exchanges and four systemically significant clearing organizations, or central counterparties (CCPs).  As these markets have grown, their potential systemic implications for the financial system have similarly increased.  This paper discusses how derivatives CCPs' margining and settlement systems work and how they affect payment and settlement systems and foster public confidence in organized markets.

Policy discussion papers are not edited, and all opinions and errors are the responsibility of the author(s). The views expressed do not necessarily reflect the views of the Federal Reserve Bank of Chicago or the Federal Reserve System.