Default is a failure by a participant to perform a material duty under the applicable contract or operating rules, triggering any remedies provided for that situation. In a financial context, the remedies may include limiting further activity, terminating outstanding obligations, liquidating or applying collateral, and pursuing other contractual rights. The relevant rules determine which circumstances qualify and how the resulting credit or settlement exposure is handled.
Source: European Central Bank (ECB) (source). This glossary entry is an independently worded adaptation of the cited information.