FIN.15:4.5 - Choose and observe the settlement mechanism

Determine whether the action settles gross, under a valid netting arrangement, or through a linked exchange. For foreign exchange, payment-versus-payment makes final transfer of one currency conditional on final transfer of the other under the service’s rules. It can remove the principal-loss exposure from paying away one leg without receiving the other. It does not promise that the trade will settle on time or supply the cash needed for prefunding.

If such protection is unavailable for the actual currencies, product, participants or deadline, retain the amount and duration of the remaining settlement exposure in the decision. A claim on a provider before settlement and an irrevocable payment awaiting receipt are different positions. Reducing the interval or using an effective net settlement can change that exposure; stating only the economic difference between two currencies cannot.

Netting also needs its actual scope. Two trades that offset economically may still settle with different counterparties or on different dates. An agreed net amount must be reconciled to the included trades and currencies. Retain excluded, disputed or late trades separately. Do not assume that adding an opposite transaction cancels the earlier trade or its payment instructions.

After submission, observe the stages needed to establish the promised result. Match accepted terms with confirmations, expected cash movements with bank or settlement evidence, and those movements with the affected obligation. Verify amount, currency, party, date and charges at the relevant scope. A payer debit may support “cash left this account”; it supports “the creditor received the required amount” only with sufficient evidence under the applicable payment rule.

Reconcile discrepancies while their consequence can still be limited. A different effective date may explain a timing difference. A fee or partial allocation may explain an amount difference. An unexplained transaction requires investigation even when recorded in a statement. Retain the supported cash movement and the unresolved cause, then correct the responsible account or instruction when the cause is established.