FRM Part II · FRM Exam Part II · Central Clearing
A CCP's default waterfall has the following layers in order after a clearing member defaults: defaulter's initial margin, defaulter's default fund contribution, CCP's own capital (skin in the game), then surviving members' default fund contributions. The defaulter's margin is 300, its fund contribution 80, CCP capital 50, and surviving members' contributions total 900 (USD million). Losses on closing out the defaulter's portfolio are 520. How much of the loss is borne by surviving members?
Surviving members bear 90 million. The defaulter's margin and fund contribution cover 380 of the 520 loss, leaving 140. The CCP's own 50 absorbs the next layer, leaving 90, which is drawn from the surviving members' default fund contributions.
- A0Correct
- B90
- C140
- D220
Explanation
Defaulter's resources: 300+80=380, leaving 140. CCP capital of 50 absorbs next, leaving 90. Surviving members' contributions then absorb 90, so the survivors bear 90, not 0. Correction: the answer is 90.
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