Settlement risk

Settlement risk, also known as delivery risk or counterparty risk, is the risk that a counterparty (or intermediary agent) fails to deliver a security or its value in cash as per agreement after the first party has delivered the security or cash value. The term covers factors incidental to the settlement process that may suspend or prevent a trade from completing, even should the parties themselves be in agreement, act in good faith, and are otherwise competent to perform.

The term applies only to risks inherent to the settlement method of a particular transaction. Broader risks of trading such as political risk or systemic risk may interrupt markets and prevent settlement, but these are not settlement risk per se.

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