The DVP (Delivery versus Payment) principle ensures that the transfer of securities and cash occurs simultaneously. In Europe, this settlement takes place in central bank money via TARGET2, eliminating any counterparty risk on the payment itself.

Multilateral netting aggregates buy and sell positions by clearing member and by security type to calculate a single net balance. For example, a member with 100 purchases and 60 sales of the same security will only transmit a net position of 40 securities to receive to the central securities depository, thereby reducing the flows to be processed.

The EMIR regulation stipulates that the CCP must hold own capital representing at least 25% of its regulatory requirements. This capital is committed as a last resort after the exhaustion of other resources (margins, mutualized default fund) to cover losses due to counterparty defaults.

The central counterparty function, or novation, transforms a bilateral transaction into two separate contracts with the CCP. For example, if bank A sells bonds to bank B on Euronext, the CCP becomes the buyer facing seller A and the seller facing buyer B. This legal substitution is protected by the Settlement Finality Directive 98/26/EC, guaranteeing the irrevocability of transactions even in the event of a participant's insolvency.

The Settlement Finality Directive 98/26/EC legally protects transactions recorded in the clearing system. It guarantees that these transactions remain irrevocable even if a participant goes bankrupt, which is crucial for the stability of financial markets.

The Lehman Brothers case demonstrated the effectiveness of CCPs: its positions cleared through LCH SwapClear were resolved in three weeks by a crisis committee composed of traders from six major banks. The margins deposited by Lehman were sufficient to cover the losses without impact on other clearing members.

The default waterfall is a mechanism codified by Article 45 of the EMIR regulation that establishes a precise order for the use of financial resources to manage counterparty defaults. First, the initial and variation margins of the defaulting member are used, followed by their contribution to the mutualized default fund, then the CCP's own capital, and finally contributions from non-defaulting members.

The key functions of CCPs include central counterparty, multilateral netting, default management, and settlement-delivery. The key mechanisms are novation, netting, default waterfall, and DVP. These distinctions help understand how each function is implemented.