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Settlement Mechanisms in Financial Markets

Abstract

The paper describes the settlement mechanisms employed

in three selected financial markets: New York Stock Exchange

(NYSE), London Metal Exchange (MLE) and Saudi Stock Market

(SSM). After the introduction, the paper explains each step of

trading process, from opining a new account and placing buy or

sell order through to the final settlement. The paper then describes

the role and functions of financial institutions in these process and

settlement risks involved. The paper concludes by exploring the

future of settlement mechanisms and their implication for the

range of permissible Islamic transactions in the financial markets.

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69 Straught Through Processing

Street name

Systemic risk

Transfer agent

Vault

)(

American Exchange Amex

Central Counterparty CCP

Clearing House Automated Payment System CHAPS

Clearing House Inter-bank Payment System CHIPS

Centralized Securities Depository CSD

Central Trading Unit CTU

Depository Trust Company DTC

Depository Trust & Clearing Company DTTC

Delivery-Versus-Payment DVP

Electronic Communication Network ECN

Electronic Securities Information System ESIS

Federal reserves bank Fed

71 /

Financial Information Exchange FIX

Financial Service Auditory FSA

London Clearing House LCH

London International Financial Futures and Options Exchange

LIFFE

London Metal Exchange LME

LME Index LMEX

National Association of Securities Dealers Automated Quotation

NSDAQ

National Securities Clearing Corporation NSCC

New York Stock Exchange NYSE

Point of Sale POS

Protected Payment System PPS

Real-Time Gross Settlement RTGS

Saudi Arabian Riyal Interbank Express SARIE

Securities Exchange Commission SEC

Saudi Payments Network SPAN

Saudi Shares Registration Company SSRC

Depository Truth & Clearing Corporation STCC

Straight through Processing STP

Society for Worldwide Interbank Financial Telecommunication

SWIFT

07

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3.

4(1 )4111 94-444.

1.

4114.

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Reverie of Financial Studies 3:1, 133-151

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the Industry on T+1, www.dttc.com.

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Counterparties: Development, Cooperation And Consolidation (A

White Paper to the Industry on the Future of CCPs),

www.dttc.com.

10. Hull, J., 1997, Options, Futures, and Other Derivatives, Prentice

Hall.

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for Equities, www.lch.com.

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1999, Report Of The Day Trading Project Group, www.nasaa.org.

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75

Working Paper, Harvard Business School.

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Information Systems in the Securities Industry, Your Institute of Finance,

Prentice Hall, Michael Teddy.

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Book, www.sia.com.

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New Your Institute of Finance, Prentice Hall.