What Are the Risks Associated with the CCP Itself Becoming Financially Distressed?
The failure of a CCP poses a significant systemic risk, as it is the central node for counterparty risk. Risks include the potential for massive, unmanageable losses that exceed the default fund, the disruption of the entire clearing and settlement process, and the forced liquidation of all outstanding positions.
This could lead to a widespread financial panic and the freezing of major derivatives markets.
Glossar
Regulatory Framework
Structure ⎊ The Regulatory Framework refers to the specific body of existing laws, rules, and enforcement policies that a jurisdiction applies to govern the issuance and trading of digital assets and related financial products.
Liquidation
Trigger ⎊ Liquidation in cryptocurrency derivatives represents the forced closure of a trading position due to insufficient margin to cover accruing losses, a critical event impacting market stability.
Widespread Financial Panic
Contagion ⎊ The propagation of extreme risk aversion and forced liquidation cascades across interconnected cryptocurrency markets, options exchanges, and derivative platforms constitutes widespread financial panic.