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Abstract
In the new age of securities industries, clearing and
settlement process is no more restricted to the domestic
market; since the industry has expanded across border
allowing investors to trade globally. In general when
we talk about clearing and settlement process, it refers
to an organized system or arrangement for the clearing
and settlement of payment obligations and transfer of
securities among the two parties who have performed
the trade. Clearing and settlement process is the most
essential part of securities trading and it is critical
that they function smoothly to boost the confidence
of the local investors to go global. The inability of
one of the institutions in performing its obligations
may result in a situation known as ‘systemic risk’,
which could lead to ripple effects to other institutions
involved in the clearing and settlement process. As
the volume of securities trading in the global market
place has increased in recent years, the need for shortening
the settlement and clearance cycle as a cost saving
and risk management discipline has become critical to
the orderly conduct of business. This can be achieved
only by using the latest technologies and adopting stringent
processes to avoid an intermediate failure.
It is quiet common for an investor based in a financial
center to trade in instruments in a securities marketplace
situated on the other side of the globe. For the settlement
of a cross border trade, the local institutions such
as custodians, central depositary and banks need to
interact with various other institutions across the
globe. This white paper discusses the high risks associated
with global clearing and settlement process and explains
the impact of the failure of a systemically important
institution in global clearing and settlement process.
Authors
Felix Amit Abraham, Barath Narayanan SS
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