How Is a CCP’s Default Fund Capitalized?
A CCP's default fund is a pool of resources designed to absorb losses that exceed the defaulting member's posted margin. It is capitalized primarily through mandatory contributions from all clearing members.
These contributions are typically based on the risk profile and volume of each member's activity. The CCP also contributes its own capital to the fund, ensuring all parties share the mutualized risk.
Glossar
Default Fund
Fund ⎊ The Default Fund, within the context of cryptocurrency derivatives, options trading, and broader financial derivatives, represents a segregated pool of assets designated to cover potential losses arising from counterparty default.
Automated Liquidation
Liquidation ⎊ Automated liquidation protocols, increasingly prevalent in cryptocurrency derivatives and options trading, represent a pre-programmed response to adverse price movements designed to mitigate counterparty risk and safeguard collateral.