Moreover, because market participants commonly have partially or fully offsetting positions with multiple counterparties, a fully bilateral network is inefficient from a risk-management standpoint: Gains in the value of positions with one counterparty cannot be netted against losses in the value of positions with other counterparties.
By taking one side of every trade, a central counterparty serves to transform the mesh network shown in panel A of figure 3 into something that looks more like the hub-and-spoke network illustrated in panel B.