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Traders can trade in Stock Exchanges only through Stock Brokers. The Brokers act as an outer layer protecting the Exchange from counter party risk because they have to provide a caution deposit to be registered as brokers. So, in case of counter party defaults, Exchange uses that caution deposit.
Stock exchange ensures counter party risk with Stock broker through which traders trades in exchange, the brokers make a caution deposit with the exchage through which exchange manages the risk
Counterparty risk is the risk to each party of a contract that the counterparty will not live up to its contractual obligations.
exchange settles the amount to the trade by taken it from broker`s caution deposit
Stock exchanges ensure counter party risk with the caution deposit done by the brokers
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