Why does Dodd-Frank offer more protection to swap traders than futures?
Recently, the Commodity Futures Trading Commission adopted a
rule that assures parties to swaps that, if their trades are
submitted to and accepted by a clearinghouse, the collateral
that they post cannot be used to cover any other customer's
This is different from the regime currently governing
regulated futures contracts. There, a clearinghouse can use my
collateral in its possession to satisfy another customer's
payment default if our common clearing member is unable to use
its own funds to do so. This was the 1980s lesson from the
Volume Investors bankruptcy where massive losses by two
customers caused that broker's collapse (a COMEX clearing
member) and the clearinghouse used other customers' Treasury
Bills to cover the net loss.
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