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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.

Publication Type:	Monograph (Discussion Paper)
Additional Information:	© 2008 the authors
Publisher Keywords:	Security clearing and settlement, gross and net systems, contagion
Subjects:	H Social Sciences > HB Economic Theory
Departments:	School of Policy & Global Affairs > Department of Economics > Discussion Paper Series

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