You are the chief executive officer of a brokerage that is a member of a clearinghouse.

A trader who clears through your firm is bankrupt at midday, but you do not yet know it even though your clearing agreement with him explicitly requires that he immediately report significant losses. The trader knows that if he takes a large position, prices might move in his favor so that he will no longer be bankrupt. The trader attempts to do so and succeeds. You find out about this later in the evening.

1. Why does the clearinghouse regulate its members?
2. What should you do about the trader?
3. Why would the clearinghouse allow you to keep his trading profits?