Several strategies can be employed to mitigate settlement risk:
Use of Clearing Houses: These institutions act as intermediaries, ensuring both parties fulfill their obligations. Netting Agreements: These agreements allow parties to offset mutual obligations, reducing the amount to be settled. Collateral Management: Requiring collateral can protect against the risk of default. Real-Time Gross Settlement (RTGS): This system ensures transactions are settled individually in real-time, reducing the risk of default.