Default Fund and Waterfall

Default Fund and Waterfall

AD Clear is committed to maintaining a secure and resilient clearing environment. Our Default Fund and Waterfall structure plays a critical role in managing and mitigating the risks associated with member defaults. This page provides an overview of the Default Fund's purpose, contributions, and the sequence of loss absorption in the event of a default.

Default Fund Overview

The Default Fund is a financial safeguard designed to cover losses that exceed the collateral provided by a defaulting Clearing Member. It is an essential component of AD Clear's risk management framework, ensuring that sufficient resources are available to manage defaults and protect the integrity of the clearing system.

Default Funds’ contribution can be posted in cash (AED) only.

Contributions to the Default Fund

  • Clearing Members' Contributions: Each Clearing Member is required to contribute to the Default Fund. The contributions are calculated based on the member's risk exposure and trading volume, ensuring proportional risk-sharing among participants.
  • Periodic Adjustments: Contributions to the Default Fund are reviewed and adjusted periodically to reflect changes in market conditions and risk profiles. Members are notified of any changes to their required contributions.

Default Waterfall Structure

AD Clear's default waterfall establishes the sequence in which the financial resources of a defaulted Clearing Member, non-defaulting Clearing Members and the resources of AD Clear are utilized to meet liquidation losses arising from default event. This is designed to be aligned with standard industry practice, i.e. defaulter-pays principle.

Default Waterfall Structure

AD Clear's Default Fund and Waterfall structure provide a robust mechanism for managing and mitigating the risks associated with member defaults. By ensuring a well-defined sequence of loss absorption, we protect the integrity of the clearing system and maintain the confidence of our participants. Our commitment to proactive risk management and financial stability underscores the trust and reliability that AD Clear brings to the market.