How Does the Clearing House Manage a Default by a Member Firm?

A clearing house manages a member's default by first using the defaulting member's collateral and funds to cover losses. It then attempts to transfer the member's client positions to other solvent members, a process called "porting".

If losses exceed the defaulter's resources, the clearing house uses its own funds and contributions from non-defaulting members. The primary goal is to isolate the default and prevent it from spreading to the broader market.