A central counterparty shall limit its credit exposure to its participants by collecting collateral as specified in Article 28a in the form of initial margin, variation margin and default fund contributions.
A central counterparty shall mark the participants’ collateral and positions to market, and shall collect margin (initial and variation margin) at least once daily when predefined thresholds are exceeded. In addition, it shall have the authority and capability to make intraday margin calls.
The margin and the default fund contributions shall cover current and potential credit exposures under a wide range of scenarios. These scenarios shall include, but not be limited to, the default of the participant or group of participants as well as the default of the two participants or two groups of participants against which a central counterparty has the largest potential credit exposure under extreme but plausible market conditions. A group of participants consists of all participants affiliated to the same parent company.
In order to cover any losses from a participant’s default, a central counterparty shall use collateral and capital in the following sequence:
margin of the defaulting participant;
default fund contributions of the defaulting participant;
dedicated capital of the central counterparty, which needs to be substantial relative to the central counterparty’s total capital;
default fund contributions of the non-defaulting participants.
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