How Does Non-Custodial Trading on an RFQ Platform Affect Settlement Risk?
Non-custodial trading on an RFQ platform does not eliminate settlement risk, but it shifts where the risk resides. The platform itself is not a counterparty, so there is no platform-specific custody risk.
Settlement risk remains between the two trading counterparties until the trade is fully settled. This requires reliance on robust legal agreements and established post-trade settlement processes, often involving third-party custodians or atomic settlement mechanisms.
Glossar
Legal Agreements
Jurisdiction ⎊ The governing legal jurisdiction determines the enforceability and interpretation of agreements related to crypto derivatives and options.
Atomic Settlement
Execution ⎊ Atomic settlement, within cryptocurrency and derivatives, signifies the conditional transfer of assets ⎊ typically digital ⎊ contingent upon simultaneous fulfillment of pre-defined conditions.
Settlement Risk
Exposure ⎊ Settlement risk in cryptocurrency, options, and derivatives arises from the failure of a counterparty to fulfill contractual obligations post-trade, specifically during the settlement period.
Isda Master Agreements
Agreement ⎊ Within the evolving landscape of cryptocurrency derivatives and options trading, an ISDA Master Agreement serves as a foundational contract, establishing standardized terms and conditions governing transactions between counterparties.
Gross Settlement
Settlement ⎊ Within cryptocurrency derivatives, gross settlement represents the simultaneous exchange of assets and their corresponding liabilities, a process crucial for finality and risk mitigation.
Counterparty Risk
Exposure ⎊ Counterparty risk represents the potential loss incurred when a trading partner defaults on their contractual obligations.