During each and every settlement process our engine maximises the number of instructions that can be settled while minimising the amount of time, credit and collateral required in order to complete the settlement of all those instructions.
We do this by using ‘netting algorithms’ to determine the net impact of settling many instructions simultaneously.
As a result, the collateral of the counterparties settling these transactions is only impacted by the net amount of activity that takes place on their account, rather than the gross amount. For example, a customer buying 1,000 securities and selling 900 of the same securities to a different counterparty would only need to have enough collateral to purchase 100 securities in order for both settlement instructions to settle. This minimises the amount of credit or collateral required for settlement as well as mitigating fails, thereby improving settlement efficiency.
The netting algorithms employed by our settlement engine address all possible netting combinations during each and every process. Depending on the number of instructions and counterparties settling at any point in time, these range from the most basic, linear, back-to-back settlement links, to the most complex relationships between multiple customers with multilateral deliveries and receipts.
In addition, multiple netting algorithms of differing complexity can be run in parallel for mutually exclusive sets of settlement transactions at any time.
There are no limits to the number, complexity or frequency with which netting algorithms can be performed. They are performed during each of the thousands of settlement cycles we run throughout the day.