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 basic default fund contribution of a Clearing Member is calculated as follows (independently from the daily stress test):

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 mean and the standard deviation of 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 the sum of the mean and the product of a risk multiplier and the standard deviation. The current value of the risk multiplier can be found in the risk parameter file on the website.
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.

The basic default fund contribution is then either the absolute minimum, the volatility based minimum or the EMIR netting cap, depending on which one is the largest.

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

Procedure in case of a significant stress test

If the total basic default fund contribution of all Clearing Members does not cover the daily stress test result the exceedance is allocated as an additional default fund contribution to the Clearing Members proportional to their initial margin requirement. The total default fund will be capped at a target level of 13.5% of the total initial margin requirement (SPAN and IMSM).

If the capped total Default Fund cannot cover the daily stress test result the resulting additional requirements will be covered by  EoD Supplementary Margin (SSMB) from all Clearing Members according to their contribution to the daily stress test result. The EoD Supplementary Margin will be considered as additional margin collateral in the daily stress test of the following days and thus reduce existing shortfalls.

In the case that the financial resources in the default fund plus ECC’s Dedicated Own Resources are not sufficient to cover the daily stress test ECC calls an Intraday Supplementary Margin (SSMA) from the two Clearing Members that produce the largest combined stress testing result. This Intraday Supplementary Margin is released the following ECC business day.

The default fund contribution per Clearing Member and the Supplementary Margins are always rounded up to €100,000.

Adjustment of the default fund and the supplementary margin

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.

The EoD Supplementary Margin requirement per Clearing Member is updated if the daily recalculation requires an adjustment. The EoD Supplementary Margin will be released if the stresstest result is equal or lower than the default fund.