Settlement Risk is the risk that one party in a financial transaction will fail to deliver the agreed securities or cash at the time of settlement, even after the trade has been executed. Also known as Delivery Risk or Counterparty Settlement Risk, it is most common in OTC derivatives and cross-border foreign exchange transactions. In India, the introduction of central clearing through NSE Clearing Limited and BSE's clearing corporation significantly reduces settlement risk in exchange-traded instruments by acting as the central counterparty (CCP) to every trade, guaranteeing settlement even if one party defaults.
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