Answer: II, I, III.

## Explanation The correct order of the CCP (Central Counterparty) loss waterfall is: **II, I, III** - Option B ### Breakdown of the CCP Loss Waterfall: 1. **II. Defaulting member's collateral and default fund contributions are exhausted** - First, the CCP uses the defaulting member's own resources (initial margin/collateral and default fund contributions) - This is the first line of defense 2. **I. Non-defaulting member's default fund contributions are exhausted** - If the defaulting member's resources are insufficient, the CCP then uses the default fund contributions of non-defaulting members - This represents mutualized risk sharing among members 3. **III. CCP taps an amount of its equity that enables them to function normally** - Only after member resources are exhausted does the CCP use its own equity - The CCP typically retains some equity as a final buffer to ensure continued operation ### Why this order matters: - The waterfall structure ensures that the defaulting member bears the first losses - Then the mutualized default fund absorbs losses - CCP equity serves as the ultimate backstop to maintain market stability - This sequence protects the CCP from insolvency and maintains market confidence

Author: LeetQuiz .