Explain the Concept of “Default Waterfall” in Clearing House Operations

A default waterfall is a pre-defined, multi-layered sequence of financial resources a clearing house will use to cover losses in the event of a member default that exceeds the defaulter's posted margin. The layers typically include the defaulter's margin, the clearing house's own capital, and then a mutualized default fund contributed by all non-defaulting members.

It is the final safety net to maintain financial stability.