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An Introduction to Trading in the Financial Markets: Trading, Markets, Instruments, and Processes by R. Tee Williams

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Appendix

Historical settlement methods

Various markets have tried a number of settlement methods. Two deserve to be described because of the importance of the markets that used them and/or because of the problems they caused.

Fixed Calendar Settlement Dates

One of the most vexing problems in the settlement of trading instruments is how to manage the settlement of millions of separate transactions. Early settlement systems in London used a process known as fortnightly settlement. In this process, all securities transactions on the London Stock Exchange settled every two weeks. Trades throughout the two-week period leading up to settlement did not settle until the end of the period. This meant that some trades could be unwound with no obligation ...

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