Settlement risk

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Settlement risk

The risk that one party will deliver and the counterparty will not be able to pay and vice versa.

Settlement Risk

The risk that a trade will not settle. For example, a buyer may not receive delivery of the securities he/she bought by the settlement date, or the seller may not receive payment. This may occur because of the negligence or deliberate withholding by one party or the other. If a party does not receive the securities or payment, he/she is not obligated fulfill his/her end of the bargain until delivery or payment is made, but this can render him/her unable to conduct other activities that would advance his/her investment goals.
References in periodicals archive ?
"We recognize that certain emerging technologies transform or accentuate traditional financial risks such as credit, liquidity, market, operational and settlement risks. Thus, we want to make sure that our supervised institutions fully understand the mechanics as well as the associated risks prior to adopting these emerging technologies," he told participants of the Bali Fintech Agenda organized by the Bank of Thailand on June 11, with the International Monetary Fund.
This settlement model has the potential to significantly reduce liquidity requirements for participants, while also decreasing settlement risks.
In October, the UAE issued the Federal Decretal Law No.10 of 2018 on Netting that is expected to lead to reduction in credit and settlement risks while increasing the effectiveness of its regulatory procedures, inclusive of safeguards related to netting.
The blockchain network acts as a clearing house, checking all partial charge/volume transactions and mitigating any settlement risks before the billing period ends.
At the same time, the BSP strongly encourages industry participants to adopt prudent governance standards in line with international best practices pertaining to trading and settlement, documentation, accounting, and market and regulatory disclosures as well as to establish appropriate safeguards to address risks such as counterparty and settlement risks.
For example, the growing menace of cybercrime and electronic payments fraud continue to challenge the payments industry globally and Nigeria must stay ahead of the curve in improving its fraud management strategy...Furthermore, in line with the national payments system strategy, we are addressing settlement risks in the payments system, by signalling that the Central Bank will cease its implicit role of lender last resort to the payments system.
As domestic and cross-border linkages among infrastructures expand, new settlement risks arise--a process that accelerates with the degree of interdependence between the linked systems and the potential complexity of the settlement mechanisms, giving rise to a need for enhancement of the central bank's oversight framework.
They claim the switch would cut dealing costs, make it eas- ier to see prices on one screen and reduce clearing and settlement risks.
Since regulators did not design these frameworks for institutions that used a settlement infrastructure powered by a DIPP, these frameworks cannot efficiently account for the settlement risks that Ripple poses and mitigates.
But, analysts say, the absence of political will on the part of all stakeholders for a genuine settlement risks reducing key events to merely more diplomatic theatrics.
* The implementation of delivery-versus-payment (DvP) systems for securities and analogous payment-versus-payment (PvP) systems for foreign exchange to mitigate settlement risks in those markets; and
Our analysis shows that the NYCHA played a similar role in managing NYSE security settlement risks, and by encouraging the NYSE to adopt more efficient clearing processes.