Settlement risk under gross and net settlement

Charles Kahn, James McAndrews and William Roberds

No 86, Staff Reports from Federal Reserve Bank of New York

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.

Keywords: Payment systems; Trade; Monetary policy (search for similar items in EconPapers)
Date: 1999
New Economics Papers: this item is included in nep-mon
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Citations: View citations in EconPapers (9)

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Related works:
Journal Article: Settlement Risk under Gross and Net Settlement (2003)
Working Paper: Settlement risk under gross and net settlement (1999)
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