Handbuch Treasury / Treasurer's Handbook

S. 652Part IV: The Settlement Process

The first chapter of this part deals with the operational risk and its importance as well as the basics of the settlement process. The settlement process of an FX deal consists of the following stages: deal capture, trade entry, confirmation, netting, settlement and nostro reconciliation. Each stage is explained in detail in chapters two to six.

The deal capture marks the beginning of the settlement process. The entry of the trade data affects the general ledger, the payment and risk system and the nostro reconciliation process. The deal capture is followed by the confirmation. All trades, external and internal, must be confirmed either by issuing a confirmation or by responding to a bank’s confirmation. Usually, confirmations are exchanged via S.W.I.F.T. or via bilateral netting systems on trade date. The next stage is the netting of the deal. Netting is an agreed offsetting of positions or obligations by trading partners or participants of a netting system. Settlement is the exchange of payments between counterparties on value date. All payments are exchanged through nostro accounts where the nostro banks get payment instructions on the day before se...