Default Management

Default Management


At AD Clear, we prioritize maintaining the integrity and stability of the clearing process. Our Default Management framework is designed to efficiently handle instances of default, ensuring that risks are mitigated and the market remains secure. Here we outline our comprehensive approach to managing defaults, protecting both the clearing house and its participants.

Default Management Framework:


  1. Monitoring and Detection:

    • Continuous assessment of Clearing Members' financial health and market positions.
    • Early detection to detect potential defaults through regular monitoring of margin requirements, collateral levels, and credit standings.

  2. Preventative Measures:

    • Imposition of Additional Margins in response to elevated risks such as position concentration or large exposures.
    • Regular communication with Clearing Members to address emerging risks and ensure adherence to margin requirements.

  3. Immediate Actions on Default:

    • Suspension of Excess Margin Withdrawals: Halting the withdrawal of excess margins to preserve liquidity.
    • Freezing Funds: Immediate freezing of funds in the defaulting member’s account to prevent further risk exposure.
    • Reconciliation of Positions: Assessing and reconciling open positions to determine exposure and required actions.

  4. Handling Open Positions:

    • Closing Out Positions: Liquidating open positions of the defaulting member to limit risk and recover funds.
    • Transferring Positions: Transferring open positions to other Clearing Members where possible to minimize market disruption.

  5. Communication and Coordination:

    • Internal Coordination: Collaboration between risk management, operations, and legal teams to execute default management procedures effectively.
    • External Communication: Timely communication with regulators, affected Clearing Members, and other stakeholders to ensure transparency and coordinated response.

  6. Post-Default Review:

    • Conducting a thorough review of the default event to identify causes and improve risk management practices.
    • Implementing lessons learned to enhance the resilience of the clearing process and prevent future defaults.

AD Clear's Default Management policies are designed to provide a structured and effective response to defaults, ensuring the stability of the clearing system and protecting the interests of all participants. Our proactive approach and comprehensive framework enable us to manage risks efficiently, maintaining the confidence and trust of our members and the broader market.