Counterparty risk

(redirected from Counter-Party Risk)
Also found in: Dictionary.
Related to Counter-Party Risk: Market risk, Liquidity risk, Settlement risk

Counterparty risk

The risk that the other party to an agreement will default. In an options contract, the risk to the option buyer that the option writer will not buy or sell the underlying as agreed.
Copyright © 2012, Campbell R. Harvey. All Rights Reserved.

Counterparty Risk

1. In options, the risk that the option holder will not exercise the option. This may be good if the price moves in the option writer's favor, but counterparty risk is small in that situation.

2. More generally, the risk that one party in a contract will default or otherwise not fulfill his/her obligations. Counterparty risk can be diminished when one party mandates a co-signer or highly-rated guarantor. See also: Intermediated market.
Farlex Financial Dictionary. © 2012 Farlex, Inc. All Rights Reserved

counterparty risk

The risk that a party to a transaction will fail to fulfill its obligations. The term is often applied specifically to swap agreements in which no clearinghouse guarantees the performance of the contract.
Wall Street Words: An A to Z Guide to Investment Terms for Today's Investor by David L. Scott. Copyright © 2003 by Houghton Mifflin Company. Published by Houghton Mifflin Company. All rights reserved. All rights reserved.

Counterparty risk.

Counterparty risk is the risk that the person or institution with whom you have entered a financial contract -- who is a counterparty to the contract -- will default on the obligation and fail to fulfill that side of the contractual agreement.

In other words, counterparty risk is a type of credit risk. Counterparty risk is the greatest in contracts drawn up directly between two parties and least in contracts where an intermediary acts as counterparty.

For example, in the listed derivatives market, the industry's or the exchange's clearinghouse is the counterparty to every purchase or sale of an options or futures contract. That eliminates the possibility that the buyer or seller won't make good on the transaction.

The clearinghouse, in turn, protects itself from risk by requiring market participants to meet margin requirements. In contrast, there is no such protection in the unlisted derivatives market where forwards and swaps are arranged.

Dictionary of Financial Terms. Copyright © 2008 Lightbulb Press, Inc. All Rights Reserved.
References in periodicals archive ?
The ratings also take into account the established position of KT in the trading business, wide range of products that reduces product concentration risk, low counter-party risk as majority of its exports are backed by a letter of credit, established set of client base which helps the firm get repeat orders and significant amount of fixed deposits which supports the liquidity position of KT.
Also, it reduces counter-party risk by making 90%-95% of sales through letters of credits from banks," Fitch added.
These rating strengths are partially offset by its weak operating performance and counter-party risk because of average credit risk profile of the off-taker.
"Being a leading agricultural commodity exchange, NCDEX strives to empower the value chain participants by creating the right environment for better price discovery and counter-party risk mitigation," he said in a statement.
* A growing demand for solutions that help balance working capital needs with the counter-party risk inherent in multina- tional companies' value chains.
However, the associated elevated counter-party risk is partially mitigated using a well-rated reinsurance panel.
In 8/2018, OCB was ranked by Moody's (one of the three most prestigious credit rating agencies in the world) to increase its Long-term Counter-party Risk rating from B2 to B1.
But complicating the credit creation process increases systemic risk: if any one of the players defaults, it will set off a domino effect by triggering counter-party risk. According to industry estimates, two-thirds of the credit created by this complicated process ends up as loans to the real economy.
The long- and short-term counter-party risk assessments assigned to Security Bank were likewise at Baa2.
- Mitigation of Risk: Pre-funding associated with the model eliminates counter-party risk.
Market conditions in the steel industry had deteriorated and thus the company was continuing to closely manage counter-party risk against this "challenging backdrop".