Continuous Net Settlement
Chapters in this video
- 0:00 The CNS blender: one net result from thousands of trades
- 1:41 Three-step netting process by security
- 2:47 Net long, net short, and the flat result
- 3:44 The clearing agency as contra party, not the original member
- 5:12 Fail-to-receive versus fail-to-deliver in open positions
- 6:29 How fails carry forward into the next day's netting
- 7:01 Rapid-fire exam recap
What this video covers
- How continuous net settlement (CNS) processes settling purchases and sales together with prior open positions by security to produce one net result
- The three possible CNS outcomes: net long position (clearing agency owes the member), net short position (member owes the clearing agency), and flat (full offset, nothing due)
- Why the clearing agency becomes the contra party for every CNS position and how the guarantee severs the direct obligation between original trading members
- How delivering members deliver to the clearing agency and receive payment from it, while receiving members receive from the clearing agency and pay it
- The distinction between an open long position as a fail-to-receive and an open short position as a fail-to-deliver
- Why a fail that remains in CNS stays as an open net position that carries forward and nets with the next day's settling trades
- How to read a CNS record using the three-question framework: which security, what net result, and does either party owe securities
Read the full lesson, free
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