Default Waterfall: Description

The declaration and management of a default is described in Chapter 9 of BME CLEARING Rulebook.

The management of a default follows three fundamental principles:

  • When a Member or a Direct Clearing Client default, it defaults across all Segments in which participates. There is “cross default” between different Segments.
  • There is a “principle of non-contamination” between Segments. Therefore, each Segment works as a hermetic compartment, where a Member or Client who is not a participant in a certain Segment, it would not be affected by a default in said Segment. Therefore, non-defaulting Clearing Members or Direct Clearing Clients may only be affected by a default in the Segment/s in which they participate.
  • In addition to the “non-contamination principle”, in case of default, BME CLEARING will proceed to apply the collateral posted as margins and other resources in such a way that:
    • it will be used up first all collateral and resources in the CCP of the defaulting Clearing Member or defaulting Direct Clearing Client.
    • BME CLEARING will assume, with a charge to BME CLEARING dedicated own resources, of a loss equivalent to the part specifically allocated (Skin in the Game) to the Segment(s) in which the default occurred, before executing the contribution to the Default Fund of non-defaulting Clearing Members in the Segment(s) with losses.
    • the last resource will be BME CLEARING´s equity.

BME CLEARING is compliant with Article 45 Regulation (EU) 648/2012, about Default Waterfall, in such a way that, according to BME CLEARING Rule Book Article 45.8, the CCP will perform, with respect to each Segment, the procedures indicated below (Default Waterfall), on a successive basis in the order listed, until the total Final Net Balance owed has been paid:

Default Waterfall


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