5. Approach to Risk Management
5.1 Overview
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The primary purpose of this section is to describe the procedures typically employed by clearing houses for exchange-traded derivatives to manage two of the sources of risk that were identified in Section 4: (1) defaults by clearing members; and (2) failures of settlement banks. Approaches to the management of operational risks and risks associated with the investment of clearing house funds are discussed briefly at the end of the section. Certain legal risks that affect the risk of clearing member defaults or settlement bank failures will be mentioned in passing, but the Study Group has not attempted a thorough review of how clearing houses manage legal risks. Furthermore, the discussion of risk management primarily seeks to identify typical practices and important variants. It seldom refers to, and does not attempt to evaluate, the practices of individual clearing houses. Facts about risk management practices of individual clearing houses are provided in Annex 2.
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5. Approach to Risk Management
