ISDA has published a paper proposing loss allocation rules when a CCP's safeguards for absorbing losses arising from a clearing member default have been exhausted. It advocates Variation Margin Gains Haircutting, whereby any remaining losses would be distributed by recourse to unpaid gains, accumulated since default, at the beneficial owner level. If this were insufficient to cover losses, and clearing participants did not agree to participate in a voluntary loss-absorption process, the option would be full tear-up of all of the CCP's contracts in the product line that has exhausted its waterfall and variation margin gains. (Source: CCP Loss Allocation at the End of the Waterfall)
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ISDA proposes "end of the waterfall" loss allocation rules for CCPs
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