Regulators find it difficult to make clearing houses stronger: bankers

New York

IN December 2013, Hanmag Securities Corp, a small South Korean brokerage firm, lost 46 billion won (S$55 million) in a day after a stock option trading algorithm went bad. It was a fatal blow for a firm with just 15 billion won of capital - Hanmag went bust. What happened next rattled regulators around the world: Hanmag defaulted on its obligations, forcing the Korea Exchange's clearing house to tap its emergency funds.

Clearing houses are a critical part of regulators' efforts to fix the financial system after the global crisis, and they have grown much larger in recent years. Seen as a way to ensure that banks are not too connected to fail, clearing houses can guarantee that if one party in a derivatives trade can't meet its obligations, other banks it trades with will still get the money they are owed.