What Is “Default Fund” or “Guaranty Fund” at a Clearinghouse?

A default fund, or guaranty fund, is a pool of financial resources contributed by the clearinghouse and its member firms. It serves as the last line of defense to cover losses that exceed the margins of a defaulting member.

Its purpose is to ensure the continued financial stability of the clearinghouse and protect non-defaulting members and the broader market from systemic risk.