Clearinghouses Are Intended to Reduce Risk. They Can Amplify It
In the GameStop fiasco, one clearinghouse made a sudden grab for collateral that could have shaken the system
The Depository Trust & Clearing Corp. is unpopular with the trading bros on r/WallStreetBets for its role in short-circuiting the short squeeze in GameStop Corp. shares. But you don’t have to care about the raucous GameStop gamers and their “diamond hands” to be concerned about the DTCC’s intervention in the episode.
Clearinghouses are intermediaries that make sure sellers of securities get paid, and buyers of securities get what they paid for. Here’s the problem in a nutshell, according to several market experts: The DTCC and its three clearing subsidiaries are focused exclusively—and understandably—on protecting the markets they serve. When risk increases, the clearinghouses demand more collateral from their customers as a safety buffer. But that collateral has to come from somewhere. So making the DTCC clearinghouse safer could leave other parts of the financial system with thinner safety buffers.