TY - JOUR
T1 - Settlement risk under gross and net settlement
AU - Kahn, Charles M.
AU - McAndrews, James
AU - Roberds, William
PY - 2003/8
Y1 - 2003/8
N2 - 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 their portfolios 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 can prevent certain gridlock situations, which may arise in gross settlement in the absence of delivery versus payment requirements. In addition, we show that net settlement can economize on collateral requirements and avoid trading delays.
AB - 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 their portfolios 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 can prevent certain gridlock situations, which may arise in gross settlement in the absence of delivery versus payment requirements. In addition, we show that net settlement can economize on collateral requirements and avoid trading delays.
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U2 - 10.1353/mcb.2003.0030
DO - 10.1353/mcb.2003.0030
M3 - Review article
AN - SCOPUS:0042352664
SN - 0022-2879
VL - 35
SP - 591
EP - 608
JO - Journal of Money, Credit and Banking
JF - Journal of Money, Credit and Banking
IS - 4
ER -