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Quantitative Finance · Glossaire

Qu'est-ce que « Unilateral irrevocable payment time » ?

Definition 20.2 Markets II: Rates, FX and Credit · Chapitre 20 — Settlement Risk

The unilateral irrevocable payment time of a currency, for a given bank, is the deadline after which it can no longer cancel a payment it has instructed in that currency. A trade’s settlement exposure runs from the irrevocable time of the currency sold to the confirmed, final receipt of the currency bought, and may be extended by the time it takes to check the receipt and by a failed payment.

Why the time zones create the risk. Payments in each currency are made during its own system’s hours; a bank that sells yen and buys dollars cannot recall its yen after the Tokyo deadline and does not know it has its dollars until New York’s afternoon. Illustrative hours, GMT, on the settlement day.
Figure 20.1. Why the time zones create the risk. Payments in each currency are made during its own system’s hours; a bank that sells yen and buys dollars cannot recall its yen after the Tokyo deadline and does not know it has its dollars until New York’s afternoon. Illustrative hours, GMT, on the settlement day.
The Herstatt day, 26 June 1974. Counterparties had paid their marks for trades done two days earlier; the bank was closed in the middle of the German business day, before New York opened, and the dollars it owed were not paid. After the ECB’s account of 2007. Schematic.
Figure 20.2. The Herstatt day, 26 June 1974. Counterparties had paid their marks for trades done two days earlier; the bank was closed in the middle of the German business day, before New York opened, and the dollars it owed were not paid. After the ECB’s account of 2007. Schematic.
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