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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