Introduction to Settlement

Settlement refers to the process of transferring funds to the seller and securities to the buyer.

This process involves series of communication between different players and hence settlement date is later than the trade date. The settlement period i.e days between the trade date and date when settlement should take place, differs based on the exchange and type of security being traded. For example it is 3 days in the US market, referred to as T+3.

However, due to various reasons, the actual settlement of securities and funds can happen beyond the settlement date. Most banks have a policy to settle their customers on the settlement date, regardless of whether the settlement has actually occurred. The customer’s cash account is credited with funds on a sale and debited on a purchase on the due settlement date. This is also referred to as Contractual settlement.

In contrast, in Actual settlement, the banks settle customers only once the counterparty actually settles their leg.

This feature explains how the system should be configured to support Securities settlement and how the process works in Temenos Transact.

The Securities (SC) module supports both contractual and actual settlements. In a contractual settlement environment, the customer’s cash account is credited with funds on a sale and debited on a purchase on the due settlement date, regardless whether the settlement has actually occurred. In an actual settlement configuration, the accounting happens only when the settlement actually occurs.