Settlementriski

Settlementriski refers to the risk that a party to a financial transaction will not fulfill their obligations when due. This risk arises in various financial markets, including securities, foreign exchange, and derivatives. The core concern is that the intended transfer of assets or funds will not occur as agreed, leading to potential financial losses for the non-defaulting party.

In securities trading, settlement risk is the possibility that one party will not deliver the securities or the payment by the settlement date. For example, if a buyer pays for stocks but the seller fails to deliver the shares, the buyer faces settlement risk. Conversely, if a seller delivers the shares but the buyer does not pay, the seller faces settlement risk.

In foreign exchange markets, settlement risk, also known as Herstatt risk, is the risk that one party to a currency transaction will deliver its side of the transaction but the other party will not deliver its side. This is particularly relevant in cross-border transactions where different time zones mean that payment and delivery cycles do not perfectly overlap.

Mitigation strategies for settlement risk include the use of clearing houses, which act as intermediaries and guarantee the completion of trades, and bilateral netting agreements, which reduce the number of individual settlements required. Regulatory bodies also play a role in setting standards and oversight to minimize the impact of settlement failures.