Clearing houses: the next casualty of the crisis?

Clearing had been a largely overlooked feature of trading on exchanges for decades until it was thrown into the spotlight by the high-profile default of Lehman Brothers in September 2008.

In the aftermath of its collapse Lehman's trading positions in markets that used clearing houses were sorted out in a matter of days. Those in non-cleared markets took months if not years.

Mindful of this experience, regulators in the United States and Europe have urged many of the largest over-the-counter markets to start using clearing houses in order to mitigate against any other default by a large trading firm.

... [but] in the view of International Monetary Fund economist Manhmohan Singh, the central counterparties dealing with over-the-counter derivatives need to hold $2 trillion in collateral if they are to successfully manage this kind of trading [for all derivatives].