[bdonlan]

In the financial industry collateral is normally used as the primary means of mitigating counterparty risk as it avoids adding an additional counterparty that you then have to evaluate for creditworthiness, and you have to pay them money instead of just temporarily handing over collateral and getting it back 100% later on.

That being said the collateral doubles as a sort of insurance; if one party's collateral is insufficient to cover the loss, the excess is spread across other market participants. This is one reason why client funds can't be used for this collateral.