What Is the Concept of “Ring-Fencing” in the Context of Cross-Margining?

Ring-fencing is a risk management measure where a CCP or prime broker legally and operationally segregates the collateral and default fund contributions of different market segments (e.g. traditional derivatives and crypto derivatives). This is done to prevent a default in one segment from automatically causing losses or depletion of resources in another, thereby containing contagion risk.