An Analysis of Settlement Risk Contagion in Alternative Securities Settlement Architectures

Iori, Giulia; Deissenberg, Christophe

doi:10.1007/978-3-540-77958-2_15

Cited by 4 publications

(2 citation statements)

References 5 publications

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“…They conclude that regarding concerns about unfair practices by CSDs towards custodian banks, regulatory interventions favouring custodian banks should be discouraged, as long as CSDs are not allowed to price discriminate between custodian banks and investor banks. Iori (2004) looks at the efficiency and stability of alternative designs for securities clearing and settlement infrastructures. Using the plausible assumption that settlement takes place in batches throughout the day and that settlement can be delayed, she finds that increasing the frequency of settlement (and therefore approximating real-time settlement) increases the likelihood of failure but reduces the systemic effects of a failure.…”

Section: European Securities Settlement Systemsmentioning

confidence: 99%

Competition and Profitability in European Financial Services

Balling¹,

Lierman²,

Mullineux³

2006

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Financial services firms play a key role in the European economy. The efficiency and profitability of these firms and the competition among them have an impact on allocation of savings, financing of investment, economic growth, the stability of the financial system and the transmission of monetary policy.Competition and Profitability in European Financial Services is a collection of research contributions which includes evaluations of trends in the European financial services industry and examines the driving forces of efficiency, competition and profitability of financial firms and institutions in Europe. The papers have been written by leading academics and researchers in the field who specialise in strategic, systematic and policy issues related to the European financial services industry.This edited collection will be essential reading for students and academics and will also be of interest to financial practitioners and government officials interested in acquiring a deeper understanding of this complex issue.

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Section: European Securities Settlement Systemsmentioning

confidence: 99%

Competition and Profitability in European Financial Services

Balling¹,

Lierman²,

Mullineux³

2006

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“…The only paper to our knowledge that investigates liquidity risk in SSSs is that of Iori (2004), which analyzes the importance of operational risk with respect to differing lag times between trade and settlement in both gross and net settlement systems. In this model, only one security is traded, and no cash or budget constraints exist for the participants in the system.…”

Section: Literature Reviewmentioning

confidence: 99%

Liquidity Risk in Securities Settlement

Devriese

Mitchell

2005

SSRN Journal

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This paper studies the potential impact on securities settlement systems (SSSs) of a major market disruption, caused by the default of the largest player. A multi-period, multi-security model with intraday credit is used to simulate direct and second-round settlement failures triggered by the default, as well as the dynamics of settlement failures, arising from a lag in settlement relative to the date of trades. The effects of the defaulter's net trade position, the numbers of securities and participants in the market, and participants' trading behavior are also analyzed.We show that in SSSs − contrary to payment systems − large and persistent settlement failures are possible even when ample liquidity is provided. Central bank liquidity support to SSSs thus cannot eliminate settlement failures due to major market disruptions. This is due to the fact that securities transactions involve a cash leg and a securities leg, and liquidity can affect only the cash side of a transaction. Whereas a broad program of securities borrowing and lending might help, it is precisely during periods of market disruption that participants will be least willing to lend securities. Settlement failures can continue to occur beyond the period corresponding to the lag in settlement. This is due to the fact that, upon observation of a default, market participants must form expectations about the impact of the default, and these expectations affect current trading behavior. If, ex post, fewer of the previous trades settle than expected, new settlement failures will occur. This result has interesting implications for financial stability. On the one hand, conservative reactions by market participants to a default − for example by limiting the volume of trades − can result in a more rapid return of the settlement system to a normal level of efficiency. On the other hand, limitation of trading by market participants can reduce market liquidity, which may have a negative impact on financial stability.

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The role of Financial Market Infrastructures in Financial Stability

Martínez-Jaramillo

Molina-Borboa

Bravo-Benítez

2015

Advances in Finance, Accounting, and Economics

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Financial Market Infrastructures (FMIs) are essential for the well-functioning of the financial system, as they play a central role in facilitating clearance and settlement of financial transactions such as payments, securities, and derivatives contracts. Nowadays, it is widely acknowledged that the proper functioning of systemically important FMIs is also vital to maintain financial stability; their failure for solvency reasons or operational disruptions could almost certainly lead to systemic instability. As a consequence, the adequate supervision of FMIs is inherent to the function of preserving financial stability. The aim of this chapter is to provide a general overview of the different FMIs; discuss their role in financial stability and to give an overview of the efforts made by some financial authorities towards the supervision, risk assessment and reinforcement of FMIs.

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An Analysis of Settlement Risk Contagion in Alternative Securities Settlement Architectures

Cited by 4 publications

References 5 publications

Competition and Profitability in European Financial Services

Competition and Profitability in European Financial Services

Liquidity Risk in Securities Settlement

The role of Financial Market Infrastructures in Financial Stability

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