The fifth answer: securitise the tail

Ask anyone in this industry how a clearing default actually gets absorbed. Usually it's the default fund getting bigger. Sometimes it's gains haircutting, or auto-deleveraging on crypto venues, cutting positions. Failing that, recovery and resolution kicks in. On a few smaller venues it's insurance, an outside underwriter paid over the odds to stand behind a fund the members won't.

Four answers with different mechanics, and in all but the bluntest of them the loss stays inside the membership, just redistributed to a different corner of it.

Here's the fifth, the one that list never includes: securitise the tail. Price the exposure and transfer it to capital-market investors who actually want that risk. Instead of every member quietly underwriting every other member, the tail sits with whoever's paid to hold it.

It's not a free lunch. Pricing a tail event well is genuinely hard. Moral hazard doesn't disappear on its own. Investor appetite for this exact risk thins out right when stress hits. Still, it's an answer the industry hasn't had to reckon with before, mostly because it's only becoming feasible now.

This first appeared on LinkedIn on 25 August 2026. If you want to comment or discuss, that's the place.