Net settlement is a payment system arrangement where multiple transactions between parties are aggregated over a period of time, and only the net difference is paid or received at the end of that period.
Key Points:
- It reduces the number of payments or transfers needed.
- Commonly used in clearing houses, interbank payments, and securities transactions.
- Helps improve liquidity efficiency and reduce transaction costs.
- Contrasts with gross settlement, where each transaction is settled individually in real time.