A central counterparty must—
| (a) | maintain a prefunded default fund to cover losses that exceed the losses to be covered by margin requirements laid down in Regulation 33, which default fund must at least enable the central counterparty to withstand, under extreme but plausible market conditions– |
| (i) | the default of the clearing member to which it has the largest exposures; or |
| (ii) | in the case where the central counterparty is involved in activities with a more complex risk profile, then the default of the second and third largest clearing members, if the sum of their exposures is larger than that of the clearing member in subparagraph (i); and |
| (b) | develop scenarios of extreme but plausible market conditions, which scenarios— |
| (i) | must include the most volatile periods that have been experienced by the markets for which the central counterparty performs its functions and a range of potential future scenarios; |
| (ii) | must take into account sudden sales of financial resources and rapid reductions in market liquidity; |
| (iii) | must establish a minimum amount below which the size of the default fund is not to fall under any circumstances; |
| (iv) | must establish the minimum size of contributions to the default fund and the criteria to calculate the contributions of the single clearing members; and |
| (v) | may establish more than one default fund for the different classes of instrument that it clears. |
