What Happens during a Clearing Member Default Event at a CCP?

When a clearing member defaults, the CCP immediately uses the defaulter's posted initial margin and variation margin to cover losses. If these funds are insufficient, the CCP will use its own capital and then draw upon the pre-funded default fund contributed by all non-defaulting members.

The CCP then takes over the defaulter's positions and attempts to liquidate or auction them to minimize market disruption.