The series of pre-funded financial resources a CCP holds against participant default is often called a waterfall. It may include the defaulting participant's initial margin and its contribution to the default fund, a specified part of the CCP's own financial resources, and non-defaulting participants' contributions to the default fund1. At JSCC, this order is set for each clearing service as its loss-coverage arrangement2.

Consider a hypothetical example in which H Co. defaults with a loss of 15 billion yen, H Co.'s resources are 8 billion yen, and the CCP's own resources are 1 billion yen. H Co.'s resources and the CCP's resources cover 9 billion yen, and the remaining 6 billion yen comes from the default fund contributions of the non-defaulting members. If the loss is 8 billion yen, H Co.'s resources alone cover it and the other members bear nothing.

The order and the amount of each resource are set by the rules of each CCP and each clearing service.

Notes

  1. Committee on Payments and Settlement Systems and Technical Committee of the International Organization of Securities Commissions, "金融市場インフラのための原則（仮訳）" (Principles for financial market infrastructures (provisional translation)) (in Japanese). ↩

  2. Japan Securities Clearing Corporation, "リスク管理 損失補償" (Risk management: loss coverage) (in Japanese). ↩