In securities processing, a default option is the choice that is applied automatically to a holder who does not respond to a corporate action offering alternatives. It has nothing to do with a borrower's default on a debt. The issuer names the default in the event terms. In a mandatory with options corporate action, such as a dividend payable in cash or shares, every holder must receive something, so those who stay silent get the default, usually cash. In a voluntary corporate action, such as a tender offer, the default is normally to take no action and keep the securities.
Custodians flag the default in each corporate action notification and apply it to any balance for which no election instruction has arrived by the election deadline. An intermediary may set a different default for its own clients, or record a standing instruction, so the option applied can differ from the issuer's.