Regulatory · Recovery · Resolution
A plan for the tail. Pre-filed. Pre-tested.
Central counterparties concentrate risk. The rulebook governs the ordinary course; this plan governs the day the ordinary course fails. We publish the default waterfall, the recovery tools, and the orderly-resolution pathway in advance — and we test them before we need them. Designed so that even in the limit a Wavestar failure does not require taxpayer support.
- Standard
- Cover-2 default fund
- Drill cadence
- Quarterly · Annual full-scope
- Resolution authority
- Pre-engaged pathway
- Taxpayer support
- Not required by design
The default waterfall
Seven tiers. Published. Tested.
The waterfall sequences the absorption of losses from a clearing-member default. Wavestar's own capital comes ahead of mutualised member contributions — alignment, not externalisation.
- Tier 1
- Defaulter IM
- Tier 2
- Defaulter DF
- Tier 3
- Skin-in-the-game
- Tier 4
- Mutualised DF
- Tier 5
- Assessment
- Tier 6
- VMGH
- Tier 7
- Partial tear-up
- Resolution
- Orderly wind-down
Initial margin posted by the defaulting member.
Default-fund contribution of the defaulting member.
Wavestar capital, on-balance-sheet, ahead of mutualised member contributions.
Non-defaulter default-fund contributions, Cover-2 sized.
Post-default assessment on non-defaulters, capped per rulebook.
Variation-margin gains haircut on winners of the defaulted book.
Targeted tear-up of positions in the defaulted book.
Pre-engaged resolution pathway with authority cooperation.
Recovery tools
How we recapitalise without a bailout.
Recovery tools are activated if the waterfall absorbs losses beyond the default fund. Each tool has a quantitative cap and a defined termination condition.
- 01
Powers of assessment
A capped, time-limited post-default assessment on surviving non-defaulting clearing members. Amount, trigger, and cap disclosed in the rulebook. Used only after the mutualised default fund is fully drawn. - 02
Variation-margin gains haircut (VMGH)
Pro-rata haircut on gains owed to counterparties of the defaulted book on the day, applied symmetrically until the loss is absorbed or the VMGH cap is reached. Cash-flow mechanism, not a credit loss to those participants. - 03
Partial tear-up
As a last recovery tool, defaulted-book positions may be torn up against a counterparty set identified under a published procedure. Tear-up is communicated with full disclosure and subject to an independent-observer review. - 04
Capital replenishment plan
Following any drawdown of skin-in-the-game, Wavestar's capital replenishment plan triggers. Capital is replaced within a defined window through retained earnings, parent-entity commitment, or emergency debt issuance. - 05
Default auctions
Auctions of defaulted-member positions run on a published protocol, within a published window, with mandatory participation of specified surviving members up to their rulebook-defined floor. No opaque carve-outs. - 06
External credit facilities
Committed liquidity facilities with tier-one depositories to manage same-day cash demands arising from a default. Facility size calibrated to stressed daily cash requirements plus a buffer.
Resolution pathway
What happens if recovery isn't enough.
If the recovery tools are exhausted or cannot restore viability, the clearing house enters an orderly resolution. Our pre-engaged pathway with financial-stability authorities is designed to preserve critical clearing continuity and minimise systemic impact.
- Day 0Planned
Recovery exhaustion declared
Board determines that recovery tools cannot restore the CCP to viability. Declaration communicated simultaneously to regulators, members, and the resolution authority. - Day 0 — hoursPlanned
Resolution authority engagement
Pre-engaged resolution authority takes over. Crisis-management committee activated. Open contracts placed under resolution-authority oversight. - Day 1Planned
Bridge-CCP decision
Resolution authority determines whether to establish a temporary bridge clearing house or to transfer critical contracts to a successor CCP. Decision made using pre-prepared operational playbooks. - Days 1 – 30Planned
Orderly close-out or transfer
Contracts either transferred to the bridge CCP / successor, or closed out in an orderly market-by-market wind-down. Member assets segregated under portable-collateral rules where applicable. - Day 30 +Planned
Residual wind-down
Residual entity unwound under standard insolvency law. Creditors paid in accordance with the rulebook's published priority waterfall. Independent liquidator appointed.
Testing
Paper plans fail. Tested plans survive.
- Q
Quarterly default-management drills
Auction protocol, VMGH execution, and assessment mechanics exercised end-to-end using synthetic default scenarios. Participating members notified in advance; results documented. - A
Annual full-scope simulation
Regulator-observed full-scope default simulation. Multi-member default, cross-class exposure, same-day cash demands. Results reviewed with the Risk Committee and published in summary. - R
Resolution-authority table-top
Joint table-top exercise with the resolution authority every 18 months. Crisis-management communication, bridge-CCP instantiation, and cross-border coordination walked through.
Ongoing obligations
Continuous attestation; continuous improvement.
The point of a resolution plan is that you never need it. The way you make sure you never need it is by writing it down, testing it, and publishing it before the crisis that would otherwise force you to invent it in public.
Public documents
The plan is a published artefact.
Recovery & Resolution register
- Recovery & Resolution Plan
Detailed operational sections under regulatory confidentiality; public summary published.
- Default-management procedures
Auction protocol, VMGH execution, assessment caps.
- Annual simulation summary
Summary report of the annual regulator-observed simulation.
- Quarterly drill log
Dates, scenarios, participants, and top findings.
- Capital replenishment plan
Window, source of replenishment, and notification cadence.
Connected documents
The tail and the baseline.
Recovery and resolution cover the tail. Operational resilience covers the baseline — the 99.995% uptime target, the multi-region DR topology, and the quarterly failover drills.