CHs have strict margin limits & settle positions daily, sometimes more frequently. We can't just waltz right up to the front door and ask for billions of $. To lose enough money to bring down a clearinghouse, we need a combination of laziness, secrecy, and luck.
-
-
A European power trader single handedly lost enough money to wipe out Nasdaq's small Member Default Fund (~$125 million). Members had to refill the fund or face default themselves. Nasdaq also spent $22 million refilling the fund with its own money.
Show this thread -
Other than this, there aren't many instances of clearinghouses losing money or facing collapse. Even in the height of COVID when big firms like Ronin blew up, it had no impact on CME's CH contribution or any other member funds.https://www.cnbc.com/2020/03/20/clearing-firm-ronin-capital-unable-to-meet-capital-requirements-at-cme-sources.html …
Show this thread -
The only way for a clearinghouse to truly collapse would be if MULTIPLE users & clearing members suffered ungodly losses simultaneously. If it didn't happen during 2008 or during COVID, chances are low it'll ever happen.pic.twitter.com/QsUyhSDI3s
Show this thread -
I say all this to applaud & admire the clearinghouse system. Its design is downright beautiful & it's been working quietly for decades now. I have no worries about clearinghouses blowing up anytime soon in their current structure.
Show this thread -
I'll be writing a premium post about CME's clearing process in the context of Ronin, its rise to prominence as a trading firm, and its peculiar downfall in the depths of March 2020. You can sign up below if interested:https://frontmonth.substack.com/
Show this thread
End of conversation
New conversation -
-
-
There's some good stuff here https://www.americanconference.com/swaps-derivative-transactions-809i17-was/wp-content/uploads/sites/1163/2016/11/day2_9.10_Zwirb.pdf … Main takeaways: failures are sparse, France in 1974, KL is 1984, HK 1987 and all due to margin issues. 1987 in the US was a near miss but resolved w Fed intervention
Thanks. Twitter will use this to make your timeline better. UndoUndo
-
Loading seems to be taking a while.
Twitter may be over capacity or experiencing a momentary hiccup. Try again or visit Twitter Status for more information.