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FRM Part I · FRM Exam Part I · Central Clearing

A CCP's default waterfall has these resources: defaulter's initial margin 400 million, defaulter's default fund contribution 100 million, CCP's own capital tranche 50 million, and surviving members' default fund contributions totaling 600 million. A default produces a loss of 820 million after close-out. Following the standard waterfall, how much of the loss is borne by surviving members' default fund contributions, and what remains of their fund afterward?

Defaulter's margin and fund contribution total 500 million and the CCP tranche adds 50 million, covering 550 million of the 820 million loss. Surviving members bear the remaining 270 million, leaving 330 million of their 600 million default fund.

  1. A270 million borne; 330 million remains
  2. B220 million borne; 380 million remainsCorrect
  3. C320 million borne; 280 million remains
  4. D820 million borne; none remains

Explanation

Defaulter's resources: 400 + 100 = 500. CCP capital: 50. Total before survivors = 550. Remaining loss = 820 - 550 = 270. Check: 270 is borne by survivors, leaving 600 - 270 = 330. So the correct figure is 270 borne and 330 remaining; option 0 states this.

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