Liquidity Margin is also known as Concentration Margin. In a default the CCP will be responsible for hedging and then closing (either by auction or trading) the clearing member positions. This is likely to cost more if the member has a large position. To allow for this, a liquidity component is included in the Initial Margin.

The Liquidity Margin is a non linear component of the margin, usually only calculated once a position goes above a particular size. It can have a significant impact on the margin requirement for certain positions. Find out more here: How liquidity add-ons can impact margin.