How Does the Concept of 'Waterfall' Loss Allocation Work in a CCP? ▴ Learn

How Does the Concept of ‘Waterfall’ Loss Allocation Work in a CCP?

The 'waterfall' is the pre-defined sequence in which a CCP absorbs losses following a clearing member's default. The typical order is: 1) the defaulting member's margin, 2) the CCP's own capital ('skin-in-the-game'), 3) the mutualized default fund contributions of non-defaulting members, and finally, 4) potential 'assessment' calls on non-defaulting members.

This structure ensures a clear, pre-agreed loss absorption process.

How Does the ‘Waterfall’ Mechanism Protect a CCP against a Large Member Default?

How Is a CCP’s Default Fund Capitalized?

How Does a CCP Ensure Its Own Solvency?

What Is the Difference between a Clearing Member and a Non-Clearing Member in a CCP Structure?