Moving the money due on settled trades is
the last phase of a stock transaction in the U.S. Instead of the
buying firm transferring money to the selling firm for each trade,
trade obligations are netted by NSCC and each firm is given settlement
instructions.
The actual payment for settlement of the
net balance, or amount that must be exchanged, is sent to DTC.
Once payment is received, DTC moves the ownership of the shares
from the selling firm to the buying firm on its automated book-entry
recordkeeping system.
Settling accounts
If a firm has a net credit at the end of
the day, which means it is owed more than it owes on the trades
it has initiated, funds are disbursed from the NSCC account at
DTC to the firm's settling bank through the Fedwire system.
If the firm has a net debit, which means it owes money, it wires
funds through its settling bank to NSCC's account at DTC,
also through the Fedwire system.
Because the netting system is so efficient,
the settlement of financial obligations between firms requires
the actual payment of only a small fraction of the billions of
dollars generated by each day's transactions.
A constant flow
With continuous net settlement, if a transaction is
not settled for any reason, the obligation remains.
So the next securities received by a firm will be
used to satisfy its existing obligation, so there
is a continuing flow of securities and money to settle
transactions.
