In the event of a default on one side of a futures trade,
A)the clearing member stands in for the defaulting party.
B)the clearing member will seek restitution for the defaulting party.
C)if the default is on the short side,a randomly selected long contract will not get paid.That party will then have standing to initiate a civil suit against the defaulting short.
D)the clearing member stands in for the defaulting party and will seek restitution for the defaulting party.

Question

Quizplus · Accepted Answer

In the event of a default on one side of a futures trade, the clearing member stands in for the defaulting party and will seek restitution for the defaulting party. This means that the clearing member takes on the responsibilities of the defaulting party to fulfill the terms of the contract and will try to recover any losses from the defaulting party. Therefore, choice D is the best option. Option A is incorrect because the clearing member does not just stand in but also seeks restitution. Option B is incorrect because the clearing member seeks restitution for the defaulting party and not for themselves. Option C is incorrect because randomly selecting a long contract to not get paid is not a standard practice in futures trading and can lead to legal ramifications.

In the Event of a Default on One Side of a Futures