How Does the “Cover 2” Standard Relate to CCP Default Fund Sizing?
The "Cover 2" standard requires a CCP to maintain enough pre-funded financial resources, including its own capital and the default fund, to cover the losses resulting from the simultaneous default of its two largest clearing members and their affiliates under extreme but plausible market conditions. This is a critical measure of a CCP's resilience.
Glossar
Largest Clearing Members
Collateralization ⎊ Largest Clearing Members within cryptocurrency derivatives markets function as central counterparties, demanding substantial collateral to mitigate counterparty credit risk ⎊ a practice mirroring established financial derivatives frameworks.
CCP Default Fund
Fund ⎊ A CCP default fund serves as a collective insurance pool to absorb losses incurred by a central counterparty following the failure of a clearing member.