This document discusses the risks involved in securities market settlements. It defines settlement risk as the risk that one party will fail to deliver their obligations in a contract at the agreed upon time. There are three main sources of settlement risk: failure of a party to deliver cash/securities, failure of the settlement agent, and systemic risks that disrupt financial markets. The types of risks discussed are market risk, systemic risk, and operational risk. Some ways to manage settlement risk mentioned are maintaining adequate capital and margin requirements, holding money/securities as collateral, early payment of funds and securities, and additional risk containment measures.

1. RISK IN
SETTLEMENTS
{CAPITAL MARKETS}
BY:
NAME: AKSHATA VERNEKAR
ROLL NO: 35
MCOM-PART I
SEM-I
(2014-15)

2. INTRODUCTION:
SETTLEMENT:
There are two types of settlements- fixed and
rolling.
A fixed cycle starts on a particular day and ends
after five days.
A rolling settlement is one in which trades
outstanding at the end of the day have to be
settled at the end of the T+X time framework.
T is the trade date and X is the days as specified
by SEBI.

3. RISK IN SETTLEMENTS:
DEFINATION:
“A key source of risk is the possibility that a
counterparty to a trade will fail to settle its
obligations when due or any time thereafter
(credit risk) or will settle its obligations later than
expected (liquidity risk).

4. Therefore, we can define settlement risk as
the risk that one party will fail to deliver the
terms of a contract with another party at the time
of settlement.

5. There are three sources of risk which can create
settlement risk:
1. Failure of one party to deliver cash,
commodities or securities at settlement.
2. The risk that the settlement agent (clearing
house, bank, exchange) will fail to perform.
3. Risk that financial markets will encounter
several difficulties, which create a systemic
risk.

6. TYPES OF
RISK IN SETTLEMENTS:
I. MARKET RISK
Market risk is the risk of losses in positions
arising from movements in market prices.
Types
Some market risks include:
• Equity risk (e.g. Euro Stoxx 50, etc. )
• Interest rate risk (e.g. Libor, Euribor, etc.)
• Currency risk (e.g. EUR/USD, EUR/GBP,
• Commodity risk (e.g. corn, copper, crude oil)

7. II. SYSTEMIC RISK
In finance, systemic risk is the risk of
collapse of an entire financial system or entire
market, as opposed to risk associated with any
one individual entity, group or component of a
system that can be contained therein without
harming the entire system.

8. III. OPERATIONAL RISK
Operational risk is "the risk of a change in
value caused by the fact that actual losses,
incurred for inadequate or failed internal
processes, people and systems, or from
external events (including legal risk), differ from
the expected losses".

9. RISK MANAGEMENT:
1.Capital Adequacy
2.Margin Requirements
3.Capital, Margin Money and/or Other Money to be
Held by the Exchange or Clearing Agency.
4.Lien on Moneys or Securities
5.Early Pay-in of Funds And Securities
6.Additional or Special Risk Containment
Measures
7.Non–Compliance of Capital Adequacy and
Margin Requirements
8.Non–Compliance by Clients
9.Evasion of Margin Requirements Forbidden