Building resilient markets The third strategy to mitigate systemic risk is to enhance the resiliency of financial markets through initiatives to improve infrastructure and enhance transparency. Continuously open financial markets are essential to a system that is robust to failure.
Keeping markets continuously open requires policies and infrastructure that reinforce the private generation of liquidity in normal times and allow for central bank support in times of crisis. The cornerstone is clearing and settlement processes with risk-reducing elements, particularly central clearing counterparties or “CCPs.” Properly risk-proofed CCPs act as firewalls against the propagation of default shocks across major market participants.