In JSCC's materials as of February 13, 2018, credit default swaps (CDS), interest rate swaps and over-the-counter transactions in Japanese government bonds (JGB) are handled by an auction in which non-defaulting members take part. For listed products, JSCC's basic approach is to liquidate or offset positions in the market, and it also uses hedging and auctions when needed. For CDS and interest rate swaps, it hedges first so that losses do not grow before the auction.
The PFMI expect a CCP that puts positions up for bidding to set out the scope and the participants' obligations clearly in its rules. For CCPs clearing over-the-counter derivatives, they say it may be necessary to consider a procedure for asking non-defaulting participants to take an allocation of the portfolio if the auction fails.
A CDS auction is a procedure that sets the price of the reference entity's debt after a credit event, and it is a separate procedure from the handling of a clearing member's default.