Settlement (finance) Definition
Settlement (of securities) is the process whereby securities or interests in securities are delivered, usually against payment, to fulfill contractual obligations, such as those arising under securities trades.
Settlement involves the delivery of securities to perform contractual delivery oligations. It usually also involves the corresponding payment of the purchase price. Usually settlement is preceded by trading, which involves entering into contracts of sale and purchase.
Although settlement is becoming quicker, in many markets a number of business days still elapse between trading and settlement. A number of risks arise for the parties during the settlement interval, which are managed by the process of clearing, which follows trading and precedes settlement. Clearing involves modifying those contractual obligations so as to facilitate settlement, usually by netting and novation.