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An Analysis of Settlement Risk Contagion in Alternative Securities Settlement Architecture

Author

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  • Iori, G.
  • Deissenberg, C.

Abstract

This paper compares the so-called gross and net architectures for securities settlement. It studies the settlement risk arising from exogenous operational delays and compares the importance of settlement failures under the two architectures, as a function of the length of the settlement cycle and of different market conditions. Under both architectures, settlement failures are non-monotonically related to the length of settlement cycle. There is no evidence that continuous time settlement provides always higher stability. Gross systems appear to be more stable than net systems.

Suggested Citation

  • Iori, G. & Deissenberg, C., 2008. "An Analysis of Settlement Risk Contagion in Alternative Securities Settlement Architecture," Working Papers 08/03, Department of Economics, City University London.
  • Handle: RePEc:cty:dpaper:08/03
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    File URL: http://openaccess.city.ac.uk/1481/1/0803_iori-deissenberg.pdf
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    References listed on IDEAS

    as
    1. Devriese, Johan & Mitchell, Janet, 2005. "Liquidity Risk in Securities Settlement," CEPR Discussion Papers 5123, C.E.P.R. Discussion Papers.
    2. Koponen, Risto & Soramäki, Kimmo, 1998. "Intraday liquidity needs in a modern interbank payment system : A simulation approach," Scientific Monographs, Bank of Finland, number 1998_014, December.
    3. Leinonen, Harry, 2005. "Liquidity, risks and speed in payment and settlement systems : a simulation approach," Scientific Monographs, Bank of Finland, number 2005_031, December.
    4. Holthausen, Cornelia & Tapking, Jens, 2007. "Raising rival's costs in the securities settlement industry," Journal of Financial Intermediation, Elsevier, vol. 16(1), pages 91-116, January.
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