Settlement means actual delivery/receipts of securities and payment of agreed amount. Settlement date is the date specified for delivery of securities between securities firms. It is necessary to make settlement to know net effect of series of transactions during given period. All transactions executed during settlement period are settled at the end of the settlement period.
It is necessary to settle all transactions of stock exchange because of risk of payment default and transfer of securities.
Settlement risk or principal risk is the risk that the seller of a security or funds delivers its obligation but does not receive payment or that the buyer of a security of funds makes payment but does not receive delivery. In Indian Stock Market, T + 2 settlements are prevailing.
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