How Does the Clearing House Manage Systemic Risk Arising from Multiple Margin Calls?

A clearing house acts as the central counterparty for derivatives trades, guaranteeing performance. It manages systemic risk by imposing stringent initial and variation margin requirements, performing daily mark-to-market calculations, and utilizing a default fund.

When multiple margin calls are triggered, the clearing house liquidates the defaulter's positions in an orderly manner and uses the default fund to absorb losses, preventing a cascade failure across the market.