settlement risk

Settlement risk is the risk that a counterparty does not deliver a security or its value in cash as per agreement when the security was traded after the other counterparty or counterparties have already delivered security or cash value as per the trade agreement.One form of settlement risk is so-called Herstatt risk, which is the settlement risk resulting from different legs of a transaction settling in different time zones (or more generally, in different settlement systems where netting is not possible). Herstatt risk exists primarily (but not exclusively) in foreign exchange transactions and cross-currency swap transaction.
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The risk that one party will deliver and the counterparty will not be able to pay and vice versa.

A general term used to designate the risk that settlement in a transfer system will not take place as expected. This risk may comprise both credit and liquidity risks.
See also:
 credit risk/exposure      liquidity risk