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What Is ‘Settlement Risk’ and How Does a Prime Broker Help Manage It?

Settlement risk is the failure of a counterparty to deliver after receiving payment; the prime broker mitigates it by guaranteeing settlement.
Greeks.Live14.11.25

What Is ‘Settlement Risk’ and How Does a Prime Broker Help Manage It?

Settlement risk, also known as Herstatt risk, is the risk that one party to a trade pays or delivers their side of the obligation, but the counterparty fails to deliver their side, typically due to insolvency. A prime broker manages this by guaranteeing the settlement of trades between the client and the execution venue.

By interposing itself, the prime broker becomes the central counterparty for the client, reducing the client's exposure to the risk of default by multiple trading venues.

How Does a Prime Broker Manage the Risk of Exchange Failure for Its Institutional Clients?
What Are the Consequences of a Broker Liquidating a Position after a Margin Call?
How Does the Process of ‘Rehypothecation’ Affect a Prime Broker’s Client Assets?
How Is Counterparty Credit Risk Managed When a Prime Broker Acts as a Central Counterparty?

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