Settlement risk is the risk that either the buyer or seller, or both, cannot fulfill their obligations in a transaction. It can come in the form of a failure to pay or to deliver an obligation. This failure can be the result of time delay, system failure or default. Settlement risk may also include the risk of unexpected costs and/or administrative inconvenience associated with the failure to deliver/receive payment to the right place at the right time. Settlement risk affects all types of assets and financial instruments.
This tool discusses the meaning of settlement risk, outlines business risks related to settlement, and shares performance measures and questions to consider.