Default Fund

Contribution per Clearing Member

ECC’s default fund is intended to cover losses that exceed the margin collateral and individual default fund contribution in the case of the default of a Clearing Member. According to the default waterfall ECC contributes its own dedicated resources before the contributions of non-defaulting Clearing Members are used. The default fund contribution of a Clearing Member is calculated as follows:

  1. Absolute Minimum: Each Clearing Member has to contribute an absolute minimum default fund contribution which is €3 million for General Clearing Members, €0.5 million for Direct Clearing Members and €2 million for Central Counterparties with an EMIR License acting as a Clearing Member.
  2. Volatility based Minimum: Based on the historical total overnight margin increases per Clearing Member (sum of SPAN and IMSM, including its Non Clearing Members and customer positions) over the last 255 trading days, the Volatility Based Minimum default fund contribution is at least the 99.9% quantile.
  3. EMIR Netting Cap: A supplementary margin is calculated for Clearing Members having a SPAN margin requirement that is reduced by more than 80% due to netting effects in comparison to the gross margin requirement as required by EMIR Article 27.
  4. Concentration Risk: According to EMIR RTS 24 (2) the risk from concentrated positions should be considered in collateral requirements. A concentration risk component is determined as a percentage of the SPAN Margin Requirement of a Clearing Member depending on how much the liquidation period of the Clearing Member or its Non Clearing Member accounts exceeds the required 2 day minimum.
    The basic default fund contribution is then either the absolute minimum, the volatility based minimum, the EMIR netting cap or the Concentration risk, depending on which one is the largest.
  5. If the total basic default fund contribution of all Clearing Members is not enough to cover the current stress test result the amount of exceedance is allocated as an additional contribution to the Clearing Members proportional to their exposure.

The default fund contribution per Clearing Member is rounded up to €100,000.

Adjustment of the default fund

ECC performs the default fund calculation daily. Adjustments of the default fund contribution are called or released on the first business day of each month. However, due to daily changes in positions and hence margin requirement or due to changes in the stress test result, the individual default fund contributions may fluctuate and ECC reserves the right to adjust default fund contributions ad hoc. To avoid unwanted high frequency updates ECC implemented the following rules:

  1. The total collateral in the default fund can be exceeded by the calculated total default fund contribution by maximum of €5 million before an ad hoc adjustment is required.
  2. The total collateral of a Clearing Member can be exceeded by its calculated default fund contribution by maximum of €0.5 million before an ad hoc adjustment is required.