FX
Problem: Settlement risk, also known as delivery risk or counterparty risk, is the risk that a counterparty (or intermediary agent) fails to deliver a security or its value in cash as per agreement after the first party has delivered the security or cash value.
Solutions:
Limits on the amount of transactions to settle with each counterparty on a given day to avoid developing a large exposure to a single counterparty;
Settlement through a clearing house to reduce exposure and liquidity required by netting transactions (bilateral or multilateral);
Requirement of initial margin deposits (also called "collateral deposits") and variation margin to provide a safety buffer;
Provide independent valuation of trades and collateral and monitor the creditworthiness of the parties to enhance transparency and risk management;
Set up a guarantee fund that can be used to cover losses that exceed a defaulting member's collateral on deposit;
Settlement through a central counterparty clearing to mutualize or transfer the settlement risk (cf. novation);
Settlement via Delivery versus payment or Payment versus payment mechanism;[6]
Settling foreign exchange via a special-purpose entity, such as the CLS Group;
Settling via a cryptographic consensus system, such as a blockchain.[7]
CLS
RESOURCES
https://www.banque-france.fr/system/files/2023-04/payments_market.pdf
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