In order to reduce the disadvantages described in the previous section, CCPs have been created to facilitate the clearing of OTC derivative transactions. CCP clearing shall include all exchanges between two participants that are traded by the clearing house. In fact, the clearing house becomes a counterparty for both parties to the original trading. This approach has the advantage of reducing the need to enter into netting agreements (each party with the clearing house). It also allows trading parties to reduce their counterparty credit risk. Counterparty credit risk is reduced, as the clearing house is the only counterparty for trading participants and is an entity capable of taking active risks in its accounts through other activities. In international law, the relationship between China and ASEAN is the relationship between a state and an international organization. They are both subjects of international law, but their international legal status is different and the implementation of certain bilateral issues requires the necessary involvement of ASEAN member States. These regulatory responses have the effect of changing the nature of counterparty risks for OTC derivatives from a bilateral to a centralized model. If these swaps were cleared bilaterally, Company B would only be able to send one larger payment to Company A instead of two payments. A second risk of regionalism and bilateralism is the creation of a complex trading system, as Baldwin claims. There are agreements within large blocs of countries in the same region, such as the north and south blocs of the Americas, Europe and Asia, which overlap with many other peripherals.
Many members of these large blocs, which are developing economies, have business with each other. For example, Mexico is part of the North American Ale Ale (NAFTA) and a free trade agreement with the EU and others. A large number of existing bilateral trades are converted into triparty clearing trades. Therefore, market participants need to develop internal processes to reload old trades (processed by paper-based agreements) on affirmation platforms (such as MarkitWire) so that trades can be cleared by the corresponding OTC derivatives of the CCP, which can lead to significant risks. Counterparty risk, in particular, increased in importance due to the 2007 credit crisis. Counterparty risk is the risk of a counterparty defaulting in a derivatives transaction before the end of trading and not making the current and future payments required by the contract.  There are many ways to limit counterparty risk. One of them focuses on the control of the credit commitment with diversification, compensation, guarantee and coverage.
 Central counterparty clearing of OTC trades has become more common in recent years, with regulators putting pressure on OTC markets to clear and openly display trades.   OTC derivatives are contracts traded and traded directly between two parties without going through an exchange or other intermediary. Products such as swaps, utilization rate agreements, exotic options – and other exotic derivatives – are almost always traded in this way. The OTC derivatives market is the largest derivatives market and is not regulated with regard to the disclosure of information between the parties, as the OTC market is composed of banks and other sophisticated parties such as hedge funds. Reporting OVER-the-counter amounts is difficult, as trades can take place in private without any activity being visible on an exchange. According to the Bank for International Settlements, the total nominal amount outstanding is $708 trillion (June 2011). Of this total amount, 67% are interest rate contracts, 8% are credit default swaps (CDS), 9% are foreign exchange contracts, 2% are raw material contracts, 1% are equity contracts and 12% are others. Since OTC derivatives are not traded on a stock exchange, there is no central counterparty.
Therefore, like a regular contract, they are subject to counterparty risk, as each counterparty depends on the performance of the other….