What Is the Difference between Pre-Settlement and Settlement Counterparty Risk? ⎊ Path

What Is the Difference between Pre-Settlement and Settlement Counterparty Risk?

Pre-settlement risk is the risk that a counterparty defaults before the contract is settled, meaning the value of the outstanding contract is lost. Settlement risk (or Herstatt risk) is the risk that one party delivers their side of the trade (e.g. pays cash) but the counterparty fails to deliver their side (e.g. the asset) during the settlement window.

Settlement risk is often a temporary but acute exposure.

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