The end of the waterfall: Industry faces up to CCP recovery and resolution

Policy-makers say they will not bail out a stricken clearing house, which means the industry needs explicit recovery and resolution plans. It also means member firms will get a better picture of exactly how much risk they face. Michael Watt reports

A clearing house is often thought of as a place of complete safety. Once a trade passes through its doors, the counterparties can relax, protected from each other by variation and initial margin, as well as a default fund built up by an inner circle of member firms and the capital of the central counterparty (CCP) itself. But what if this waterfall of resources is not enough?

The options now being sketched out by supervisors and CCPs should make it clear exactly what happens in this situation