Once the CM has been declared in default and hedged, if necessary, his position, BME Clearing will proceed to auction the DCM’s position among the NDCM.

For this purpose the CCP, every time advised by the DMG, will decide previously whether or not split the DCM’s position (either by curve tenors or floating references, Euribor , Eonia, EuroSTR) and the auction model (if there is a single or several winners, in which case they will have to define Auction Units (AU) for each NDCM must bid).

Once decided, the NDCM shall communicate to the CCP the bid amount by position or assigned AU. The bid price is the NPV of the position for which the NDCM has to bid.

BME Clearing solves auction assigning the position at the best price. In case of two best prices were equal, CCP will use the temporary FIFO (first auction to arrive is the winner). The CCP may declare the auction null and void if the bid price does not reach a reasonable level under CCP’s criteria. Bids may be positive, when the NDCM has to pay BME CLEARING the price, or, on the other hand, negative, if the NDCM has to receive the bid price from BME Clearing. Shall be the duty of all the MCNI attend the auction with bids, although one NDCM may delegate in another NDCM this obligation.

Once resolved the auction, the winner NDCM will become the owner of the assigned position, with all rights and obligations. All liquidations corresponding to the auctioned position are the responsibility of DCM until it is registered in the name of the winner NDCM.

In the event that the auction of the position may incur losses, these will be absorbed into 3 levels:

  • Level 1: All margins posted by the DCM (Initial margin, Individual Margin and his contribution to the Default Fund).
  • Level 2: BME Clearing’s own resources in the swaps’ segment ("Skin in the game")
  • Level 3: The contribution to Default Fund of NDCM according their CCP’s risk share.

If all these levels of defense were not enough, then will come into play BME Clearing’s own Resources, reaching, if the case, to close the business at the Swaps’ segment.

Auctions waterfall


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