For collateral, Wrong Way Risk will occur when the value of the collateral falls at the same time as either the clearing member has financial difficulties or the losses on the products that the margin is covering increases.
In practice this means that there will be specific restrictions on use of collateral, such as a clearing member not being able to use their own shares even if these are on the list of valid collateral. Coverage for Wrong Way Risk may also be included as Additional Margin as part of the Initial Margin methodology.