MARGIN CALL!

Clearinghouse reform comes back to bite regulators

For years I found the clearinghouse reforms extremely foolish. To cut a long story short - market risk pricing move from banks that could go bust - to clearinghouses that could not. The means that they price risk badly.

The upshot of this is that when a shock happens they raise initial margins across the board - destroying liquidity and making crisis worse not better. We saw in gilt markets under Truss and we are seeing it today in JGBs.

From the looks of it is now spreading to Treasuries.

If you hear people talking about the basis trade blowing up - you should read this as clearinghouse failure. Expect to here comments like 30 sigma events etc. This is clearinghouse failure.

What does this mean? Cash is king. No asset is safe from clearinghouse driven liquidation. It ends with intervention or the blow up of famous high performing hedge funds. Good luck out there.