Electronic settlement

The electronic settlement system came about largely as a result of Clearance and Settlement Systems in the World's Securities Markets, a major report in 1989 by the Washington-based think tank, the Group of Thirty. This report made nine recommendations with a view to achieving more efficient settlement. This was followed up in 2003 with a report called Clearing and Settlement: A Plan of Action[1] with 20 recommendations.

In an electronic settlement system, electronic settlement takes place between participants. If a non-participant wishes to settle its interests, it must do so through a participant acting as a custodian. The interests of participants are recorded by credit entries in securities accounts maintained in their names by the operator of the system. It permits both quick and efficient settlement by removing the need for paperwork, and the synchronisation of the delivery of securities with the payment of a corresponding cash sum (called delivery versus payment, or DVP).

The recent development of electronic securities trading has brought about settlement pressures akin to the paper crunch of the 1970s and 1980s, rendering the need for further efficiencies urgent.