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CISI Global Securities Operations study materials
CISI Global Securities Operations study resources

CISI Global Securities Operations: Clearing, Settlement and the Settlement Cycle

CISI Global Securities Operations · Work through your exam, one topic at a time.

All guide sections

Clearing, Settlement and the Settlement Cycle

What this domain tests

Here the exam tests the mechanics of clearing versus settlement, the current settlement cycles by market, delivery-versus-payment, matching and fails handling under settlement discipline regimes.

Clearing

  • Novation: the CCP interposes itself between buyer and seller, becoming counterparty to each side.
  • Netting: multilateral netting reduces each member to one obligation per instrument and currency.
  • Margin: initial margin covers potential future exposure; variation margin is called daily against mark-to-market moves. A default waterfall (defaulter's margin, default fund, CCP capital) stands behind the process.

Settlement

  • Settlement is the exchange of securities against cash, normally DVP/RVP; free-of-payment transfers move securities without a cash leg.
  • Settlement cycles: T+1 for US, Canadian and Mexican securities since 27 May 2024; T+2 in most European and Asian markets; the UK, EU and Switzerland are targeting T+1 on 11 October 2027.
  • Trades must be matched (both parties' instructions agree) and affirmed before the CSD accepts them; statuses run unmatched, matched, settled, failed.
  • Fails: under CSDR settlement discipline, cash penalties apply to failing participants, with buy-in as a last resort (mandatory buy-in provisions have been repeatedly deferred).
  • Messaging uses ISO 15022 or the migrating ISO 20022 standards.

Worked example

A US equity trade executes on Friday 5 July. Reasoning: T+1 means settlement is the next business day, Monday 8 July, since Saturday and Sunday are not settlement days. The same trade in a T+2 European market would settle Tuesday 9 July. If Monday 8 July were a US public holiday, settlement moves to Tuesday 9 July. Always count business days in the market of the security, not the client's home market.

Traps that cost marks

  • Counting the trade date as day one of the cycle.
  • Assuming T+1 now applies globally - it does not.
  • Confusing clearing (CCP, risk mutualisation) with settlement (CSD, final transfer).
  • Ignoring that penalties and buy-in are separate CSDR tools with separate triggers.