IDEAS home Printed from https://ideas.repec.org/p/ecb/ecbwps/2004404.html
   My bibliography  Save this paper

An analysis of systemic risk in alternative securities settlement architectures

Author

Listed:
  • Iori, Giulia

Abstract

This paper compares securities settlement gross and netting architectures. It studies settlement risk arising from exogenous operational delays and compares settlement failures between the two architectures as functions of the length of the settlement interval under different market conditions. While settlement failures are non monotonically related to the length of settlement cycles under both architectures, there is no clear cut ranking of which architecture delivers greater stability. We show that while, on average, netting systems seem to be more stable than gross systems, rare events may lead to contagious defaults that could affect the all system. Furthermore netting system are very sensitive to the number and initial distribution of traded shares. JEL Classification: C6, D4, G20, O33

Suggested Citation

  • Iori, Giulia, 2004. "An analysis of systemic risk in alternative securities settlement architectures," Working Paper Series 404, European Central Bank.
    • Handle: RePEc:ecb:ecbwps:2004404
    as

    Download full text from publisher

    File URL: https://www.ecb.europa.eu//pub/pdf/scpwps/ecbwp404.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Holthausen, Cornelia & Tapking, Jens, 2007. "Raising rival's costs in the securities settlement industry," Journal of Financial Intermediation, Elsevier, vol. 16(1), pages 91-116, January.
    2. Michael J. Fleming & Kenneth D. Garbade, 2002. "When the back office moved to the front burner: settlement fails in the treasury market after 9/11," Economic Policy Review, Federal Reserve Bank of New York, vol. 8(Nov), pages 35-57.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Devriese, Johan & Mitchell, Janet, 2006. "Liquidity risk in securities settlement," Journal of Banking & Finance, Elsevier, vol. 30(6), pages 1807-1834, June.
    2. Leinonen, Harry (ed.), 2007. "Simulation studies of liquidity needs, risks and efficiency in payment networks: Proceedings from the Bank of Finland Payment and Settlement System Seminars 2005-2006," Bank of Finland Scientific Monographs, Bank of Finland, volume 0, number sm2007_039, July.
    3. Gisèle Chanel-Reynaud & Dominique Chabert, 2006. "The evolution of central securities depositaries in Europe : stable functions in a changing environment," Revue d'Économie Financière, Programme National Persée, vol. 82(1), pages 203-220.
    4. Guido Fioretti, 2005. "Credit Rationing in a Basic Agent-Based Model," Finance 0505002, University Library of Munich, Germany.
    5. Gisèle Chanel-Reynaud & Dominique Chabert, 2006. "L’évolution des dépositaires centraux de titres en Europe : des fonctions stables dans un espace mouvant," Revue d'Économie Financière, Programme National Persée, vol. 82(1), pages 221-239.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Droll, Thomas & Podlich, Natalia & Wedow, Michael, 2016. "Out of sight, out of mind? On the risk of sub-custodian structures," Journal of Banking & Finance, Elsevier, vol. 68(C), pages 47-56.
    2. Kauko, Karlo, 2007. "Interlinking securities settlement systems: A strategic commitment?," Journal of Banking & Finance, Elsevier, vol. 31(10), pages 2962-2977, October.
    3. Cyril Monnet & Thomas Nellen, 2021. "The Collateral Costs of Clearing," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 53(5), pages 939-970, August.
    4. Silber, William L., 2005. "What happened to liquidity when world war I shut the NYSE?," Journal of Financial Economics, Elsevier, vol. 78(3), pages 685-701, December.
    5. Degryse, H.A. & van Achter, M. & Wuyts, G., 2012. "Internalization, Clearing and Settlement, and Liquidity," Discussion Paper 2012-002, Tilburg University, Center for Economic Research.
    6. Steffen Juranek & Uwe Walz, 2020. "Organizational Design, Competition, and Financial Exchanges," Scandinavian Journal of Economics, Wiley Blackwell, vol. 122(1), pages 132-163, January.
    7. Tobe, Reiko & Uno, Jun, 2024. "Central bank asset purchases and lending: Impact on search frictions," Journal of Financial Intermediation, Elsevier, vol. 58(C).
    8. Devriese, Johan & Mitchell, Janet, 2006. "Liquidity risk in securities settlement," Journal of Banking & Finance, Elsevier, vol. 30(6), pages 1807-1834, June.
    9. Hans Degryse & Mark Van Achter & Gunther Wuyts, 2022. "Plumbing of Securities Markets: The Impact of Post-trade Fees on Trading and Welfare," Management Science, INFORMS, vol. 68(1), pages 635-653, January.
    10. Li, Shaofang & Marinč, Matej, 2018. "Economies of scale and scope in financial market infrastructures," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 53(C), pages 17-49.
    11. Kahn, Charles M. & Roberds, William, 2009. "Why pay? An introduction to payments economics," Journal of Financial Intermediation, Elsevier, vol. 18(1), pages 1-23, January.
    12. Tapking, Jens & Yang, Jing, 2006. "Horizontal and Vertical Integration in Securities Trading and Settlement," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 38(7), pages 1765-1795, October.
    13. Koeppl, Thorsten & Monnet, Cyril & Temzelides, Ted, 2012. "Optimal clearing arrangements for financial trades," Journal of Financial Economics, Elsevier, vol. 103(1), pages 189-203.
    14. Christopher J. Neely, 2004. "The Federal Reserve responds to crises: September 11th was not the first," Review, Federal Reserve Bank of St. Louis, vol. 86(Mar), pages 27-42.
    15. Edgardo Barandiarán, 2003. "El Prestamista de Última Instancia en la Nueva Industria Bancaria," Latin American Journal of Economics-formerly Cuadernos de Economía, Instituto de Economía. Pontificia Universidad Católica de Chile., vol. 40(120), pages 337-358.
    16. Fleming, Michael J. & Garbade, Kenneth D., 2007. "Dealer behavior in the specials market for US Treasury securities," Journal of Financial Intermediation, Elsevier, vol. 16(2), pages 204-228, April.
    17. Kenneth D. Garbade, 2004. "Origins of the Federal Reserve book-entry system," Economic Policy Review, Federal Reserve Bank of New York, issue Dec, pages 33-50.
    18. Michael J. Fleming & Kenneth D. Garbade & Frank Keane, 2005. "Anomalous Bidding In Short‐Term Treasury Bill Auctions," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 28(2), pages 165-176, June.
    19. Torben G. Andersen & Luca Benzoni, 2010. "Do Bonds Span Volatility Risk in the U.S. Treasury Market? A Specification Test for Affine Term Structure Models," Journal of Finance, American Finance Association, vol. 65(2), pages 603-653, April.
    20. Boni, Leslie, 2006. "Strategic delivery failures in U.S. equity markets," Journal of Financial Markets, Elsevier, vol. 9(1), pages 1-26, February.

    More about this item

    Keywords

    gross and net systems; security clearing and settlement; systemic risk;
    All these keywords.

    JEL classification:

    • C6 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling
    • D4 - Microeconomics - - Market Structure, Pricing, and Design
    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ecb:ecbwps:2004404. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Official Publications (email available below). General contact details of provider: https://edirc.repec.org/data/emieude.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.