Chapter 04 · Section 4.1

Failing to meet the Margin Call

• As a condition of membership clearing members must be significantly capitalized.
• If a clearing member were to fail to meet its margin call, the clearing house would immediately liquidate the clearing member's open positions to cut the risk of further loss.
• The clearing member would remain financially responsible for its positions.
• Because of the guarantee, if there were uncovered losses, the clearing house would cover these losses by utilizing the resources at its disposal.
• First, the clearing house would use the clearing member's margin deposit to cover a loss.
• As a condition of membership, every clearing member must contribute to the clearing house guarantee fund.
• If the margin deposit were not enough to cover the loss, then the clearing house would allocate the clearing member's contribution to the guarantee fund.
• If the loss were still not covered, the clearing house would turn to its own surplus fund, accumulated from a fee charged to each clearing member for every transaction cleared.
• If the clearing member's margin deposit, the clearing member's contribution to the guarantee fund, and the surplus fund are insufficient to cover the loss, then the clearing house turns to the guarantee fund contribution of other clearing members to make up for any deficit of the clearing member in default.
• Furthermore, the clearing house would levy a special assessment on all clearing members to replenish the fund.