Transaction settlement is the process of transferring the ownership of a financial asset from the seller to the buyer, ensuring that the buyer has paid the seller and the seller has delivered the asset. It is a critical step in financial markets that involves various entities like clearinghouses and custodians to mitigate risks and ensure the integrity of the transaction.
Net settlement is a payment system process where only the net difference between total debits and credits is transferred between financial institutions, reducing the number of transactions and associated costs. This system enhances efficiency and liquidity management in financial markets by minimizing the need for large cash reserves and decreasing settlement risk.