Default Simulation Exercises by CCPs

In June 2019, I wrote a blog titled, CCP Default Management Auctions, in which I covered the BIS CPMI-IOSCODiscussion paper on central counterparty default management auctions” and explained how Clarus CHARM helps clearing members with their default management obligations, both actual and firedrill tests.

One of the points in the discussion paper was on a global clearing member defaulting across multiple CCPs and the need to conduct concurrent CCP default management exercises to test for this scenario. At the time, there had been attempts to co-ordinate the timing of these drills between a few CCPs, however these were limited in scope.

So it is of great interest to see that CCPGlobal, the Global Association of Central Counterparties, is co-ordinating the first multi-CCP default simulation exercise with collective industry efforts through an association. This has been named, 2023 CIDS (CCP Global – International Default Simulation).

2023 CIDS

The 2023 CIDS started on Monday 13 November with the participation of 31 CCPs.

Full details can be found on the CCPGlobal website, see here.

Two documents the 2023 CIDS Plan and the CIDS Guidance Letter are well worth reading. They are both brief enough that there is no need for me to summarise, except to note that Guidance Letter provides:

  • A number of guidelines, in bullet point form
  • (E.g. The exercise envisages a top 5 clearing member at each CCP to default)
  • CCPs are expected to provide quantitative and qualitative data post-exercise
  • The full list of participating CCPs


We wholeheartedly back this initiative by CCPGlobal and its member CCPs.

CCPs are systematiclly important market infrastructure and default management processes that are tried and tested are fundamental to their sound operation.

Executed trades are novated by a CCPs, meaning it becomes the party to both original counterparties and runs a flat position. However should a member default, the CCPs needs a well defined process for this members trades to be closed out or taken over by other members.

Often this involves an auction and it is in everyones interest that the defaulting members own resources (initial margin, default fund contributions) are sufficient to cover any losses. If not, the mutalised default fund contributions of all members and the CCPs own contributions must be drawn upon, as happened in Sep 2018 in the Default at Nasdaq Clearing.

A well designed process, with regular drills is key to success.

With concurrent drills, both CCPs and clearing members need to expend more resources and to mitigate bottlenecks, more automation and improved processes are necessary.

Please contact us to learn how Clarus can help with this.

In the meantime, don’t forget to read the details at 2023 CID.

Stay informed with our FREE newsletter, subscribe here.