Definition of Settlement risk:
Probability of loss arising from the failure of one counterparty to settle its end of the deal, thus preventing other counterparties to settle their commitments. It arises usually when payments are not exchanged simultaneously. See also cross currency settlement risk and Herstatt risk.
In principle, settlement risk is simply the chance that a buyer or seller fails to keep their end of a deal. Whenever anyone buys goods online, there is the risk that the goods will show up late or never arrive. This risk is very similar to settlement risk in securities markets.
Settlement risk is the possibility that one or more parties will fail to deliver on the terms of a contract at the agreed-upon time. Settlement risk is a type of counterparty risk associated with default risk, as well as with timing differences between parties. Settlement risk is also called delivery risk or Herstatt risk.
How to use Settlement risk in a sentence?
- Settlement risk is usually nearly nonexistent in securities markets.
- Settlement risk is the possibility that one or more parties will fail to deliver on the terms of a contract at the agreed-upon time.
- The two main types of settlement risk are default risk and settlement timing risks.
- Settlement risk is sometimes called "Herstatt risk," named after the well-known failure of the German bank Herstatt.
Meaning of Settlement risk & Settlement risk Definition