What Is the Role of the CCP’S’default Fund’ in Managing Systemic Risk?

The CCP's default fund is a pool of financial resources contributed by the CCP itself and its clearing members. Its primary role is to act as a financial buffer, or 'waterfall,' to absorb losses that exceed the defaulting member's posted initial margin and the CCP's own capital.

By mutualizing the risk, the default fund prevents the failure of one member from cascading through the system and causing a wider systemic crisis.