What Is Net Settlement?

Net settlement refers to the payment system that subtracts the total amount of transfers sent by various financial institutions at a certain point in time to obtain the net balance. Net settlement can be divided into two forms: bilateral net settlement and multilateral net settlement.

Net settlement

Net settlement

In March 1989, the Group of Thirty, composed of experts in the field of securities clearing and settlement in various countries, proposed nine settlement and settlement operations recommendations (G-30 Recom-men-dation) in order to improve the efficiency and reduce the risk of securities market delivery. ). One of the proposals is to promote the delivery of silver against DVP (Delivery versus Pay-ment), linking the payment and receipt of securities market funds with the transfer of securities.

The International Securities Service Association (Interna-tional Securities Service Association, ISSA) defines DVP as: the results of silver transactions are synchronized in real time, final and irrevocable. The purpose of establishing the DVP system is to reduce the credit risk of counterparties, and eliminate the risk that the seller has delivered the securities but did not receive the corresponding payment, or the buyer has delivered the funds but did not receive the principal risk of the securities (Princi-pal Risk ). That is, the core connotation of DVP is that securities and funds are settled at the same time, so as to prevent the default risk of settlement counterparties.