Does Cross-Margining Increase or Decrease the Overall Systemic Risk for the Clearing House?
Cross-margining is generally considered to decrease the overall systemic risk for the clearing house. By allowing traders to use capital more efficiently and requiring less total margin for diversified portfolios, it reduces the likelihood of individual trader defaults due to inefficient capital use.
However, it can increase risk if the correlation assumption between the cross-margined assets breaks down unexpectedly.
Glossar
Systemic Risk
Contagion ⎊ Systemic risk within cryptocurrency, options trading, and financial derivatives manifests primarily through interconnectedness, where the failure of one entity can propagate rapidly across the system.
Clearing House
Settlement ⎊ A clearing house, within cryptocurrency and derivatives markets, functions as an intermediary between buyers and sellers, mitigating counterparty risk through a process of novation ⎊ replacing original trade agreements with new ones directly with the clearing house.