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The completion of a transaction or of processing with the aim of discharging participants’ obligations through the transfer of funds and/or securities. A settlement may be final or provisional. See also
final settlement gross settlement net settlement provisional settlement
settlement account
An account held at a central bank or a central securities depository, or with a central counterparty or any other institution acting as a settlement agent, which is used to settle transactions between participants in a system.
The inability of a participant to meet its settlement obligations in a system. This inability may be temporary or permanent. See also
default failed transaction
In a transfer system, the time lag between the acceptance of the transfer order by the system and its final settlement. In an exchange-for-value system, the time lag between entering into a trade/bargain and finally exchanging the financial asset for payment.
settlement obligation
The requirement, as a result of the settlement process, that a participant in a settlement system effect payment or deliver assets.
settlement risk
The risk that settlement in a transfer system will not take place as expected, usually owing to a party defaulting on one or more settlement obligations. This risk includes, in particular, operational risks, credit risks and liquidity risks. See also
credit risk liquidity risk operational risk
A participant which maintains one or more accounts with a settlement agent in order to settle funds or securities transfers on its own behalf or, potentially, for other market participants. See also
settlement agent tiering arrangement
SFT
securities financing transaction
Single Euro Payments Area (SEPA)
A process initiated by European banks and supported, inter alia, by the Eurosystem and the European Commission with a view to integrating retail payment systems and transforming the euro area into a true domestic market for the payment industry.
An entity, usually a credit institution, that provides international central securities depositories (ICSDs) with safekeeping and asset servicing for physical certificates (“individual notes”) that represent shares in international debt instruments (e.g. Eurobonds). See also
common depository
A central bank credit facility available to counterparties at their own initiative. The Eurosystem offers two overnight standing facilities: the marginal lending facility and the deposit facility. See also
deposit facility marginal lending facility
standing order
An instruction from a customer to its bank to make a regular payment of a fixed amount to a named beneficiary.
The automated end-to-end processing of trades/payment transfers – including, where relevant, the automated completion of confirmation, matching, generation, clearing and settlement of orders.
substitution of securities
A situation in which an institution which has provided securities as collateral recalls them and replaces them with other securities of equivalent market value.
survivors pay
A loss-sharing arrangement which, in the event of a participant’s inability to settle, requires losses to be borne by the other (non-defaulting) participants in accordance with a predetermined formula. Antonym:
defaulter pays
systemic risk
The risk that the inability of one participant to meet its obligations in a system will cause other participants to be unable to meet their obligations when they become due, potentially with spillover effects (e.g. significant liquidity or credit problems) threatening the stability of or confidence in the financial system. That inability to meet obligations can be caused by operational or financial problems.
systemically important payment system (SIPS)
A payment system which has the potential to trigger systemic risks in the event of it being insufficiently protected against the risks to which it is exposed.