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Settlement risk under gross and net settlement (2003)
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| Venue: | Journal of Money Credit and Banking |
| Citations: | 25 - 2 self |
BibTeX
@ARTICLE{Kahn03settlementrisk,
author = {Charles M. Kahn and James Mcandrews and William Roberds},
title = {Settlement risk under gross and net settlement},
journal = {Journal of Money Credit and Banking},
year = {2003},
pages = {591--608}
}
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Abstract
Abstract: Previous comparative analyses of gross and net settlement have focused on the credit risk of the central counterparty in net settlement arrangements, and on the incentives for participants to alter the risk of the portfolio under net settlement. By modeling the trading economy that generates the demand for payment services, we are able to show some largely unexplored advantages of net settlement. We find that net settlement systems avoid certain gridlock situations, which may arise in gross settlement in the absence of delivery versus payment requirements. In addition, net settlement can economize on collateral requirements and avoid trading delays.
Keyphrases
net settlement settlement risk unexplored advantage previous comparative analysis trading economy gross settlement central counterparty avoid trading delay net settlement system delivery versus payment requirement net settlement arrangement payment service credit risk collateral requirement certain gridlock situation
