Delivery-versus-Payment Settlement

Cleared trade, earmarked legs, atomic DvP commit, and the fail-to-deliver buy-in branch

Delivery-versus-Payment Settlement Cleared trade, earmarked legs, atomic DvP commit, and the fail-to-deliver buy-in branch buy order matched sell order matched net settlement instruction earmark securities reserve buyer cash on shortfall: buy-in If the seller cannot deliver by T+2, the CSD/CCP buys in to cover the buyer DvP commit: pay & deliver Atomic invariant: securities and cash move together, or neither moves cash leg final securities credited cash credited Trade & clearing Earmark both legs Atomic DvP settle Buyer · receives securities · Sequence participant Buyer receives securities Clearing · CCP · netting · Sequence participant Clearing CCP · netting CSD · settlement ledger · Sequence participant CSD settlement ledger Cash (RTGS) · central-bank money · Sequence participant Cash (RTGS) central-bank money Seller · delivers securities · Sequence participant Seller delivers securities Legend request return security async trace

Principal Risk Removed

  • • Delivery and payment commit as one event
  • • No window where one side pays without receiving
  • • Herstatt-style principal loss is engineered out

Netted at the CCP

  • • Novation makes the CCP the counterparty to both sides
  • • Multilateral netting collapses gross obligations
  • • Only net positions reach the depository

Final on T+2

  • • The commit is irrevocable settlement finality
  • • A delivery shortfall diverts to a buy-in, not a reversal
  • • Both legs settle in central-bank money

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