What Happens If a Clearinghouse Faces a Major Default by a Member Firm?

If a member firm defaults, the clearinghouse initiates its default management process. It first uses the defaulting member's margin and default fund contributions.

If those are insufficient, it uses its own capital and then, if necessary, the default fund contributions of non-defaulting members. The ultimate goal is to liquidate the defaulting firm's positions in an orderly manner and cover losses to maintain market integrity.