CCPs: how deep is your waterfall?

I want to compare one CCP versus another. I want the CCP to tell me how many clearing members – starting with the largest – that the default fund covers. Does it cover only the largest clearing member, the top three, five or 10 clearing members, or everybody? How deep is the waterfall?

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Portfolio margining sounds good but in a default it could be toxic. You have to unwind everything together or you get a close out mismatch when one side of the portfolio becomes gross and not net, but there is only net margin to cover a now gross risk. It is like pulling the plug on the waterfall, suddenly it’s not as deep as you thought it was.

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Tags: CCPCCPsRiskWaterfallClearingRegulationdefault fund