Lines of Defense (waterfall)
In the event of a default of one Clearing Member or a simultaneous default of more than one Clearing Member, the Defense Lines (order of realization of collateral) come into effect to close out the relevant positions.
To cover potential losses arising from the positions of Member(s), Defense Lines start with the (initial and variation margin) and Default Fund Contribution of the Defaulting Member.
If individual protection proves insufficient, CCP protection comes into force; this uses 25 % of SIX x-clear Ltd’s capital in the first instance. The next Defense Line is the use of the solidarity level by starting with the respective Default Fund segment according to the asset classes cleared by the Defaulting Member of the respective single or joint market.
If the amount is still not sufficient to cover the open positions, the respective Default Fund segment will have to be replenished by non-Defaulting Members who need to contribute to the same degree as the individual Default Fund Contribution.
Finally, the capital and the reserves of SIX x-clear Ltd are used to close out the positions at the end of the process.
Lines of Defense