Settlement risk: Difference between revisions
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'''Settlement risk''', also known as the '''Herstatt risk''' is the [[risk]] that a [[Counterparty|counterparty]] does not deliver [[Security (finance)|security]] or its [[value]] in cash as per agreement when the security was traded after other [[counterparty]] or counterparties have delivered security or cash value as per the [[trade]] agreement. |
'''Settlement risk''', also known as the '''Herstatt risk''' is the [[risk]] that a [[Counterparty|counterparty]] does not deliver [[Security (finance)|security]] or its [[value]] in cash as per agreement when the security was traded after other [[counterparty]] or counterparties have delivered security or cash value as per the [[trade]] agreement. |
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The term '''Herstatt risk''' follows from a famous incident on [[June 26]], [[1974]], in which the [[Germany|german]] [[Herstatt bank]] was closed down on the last business day of its insolvent operations before the US business day began. As a result, many of the US creditors holding unsecured claims against the bank were left with unrecoverable debts. |
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Revision as of 14:30, 1 August 2005
Settlement risk, also known as the Herstatt risk is the risk that a counterparty does not deliver security or its value in cash as per agreement when the security was traded after other counterparty or counterparties have delivered security or cash value as per the trade agreement.
The term Herstatt risk follows from a famous incident on June 26, 1974, in which the german Herstatt bank was closed down on the last business day of its insolvent operations before the US business day began. As a result, many of the US creditors holding unsecured claims against the bank were left with unrecoverable debts.
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