what is settlement risk 
settlement risk is the possibility that one or more parties will fail to deliver on the terms of a contract at the agreed upon time settlement risk is a type of counterparty risk associated with default risk as well as with timing differences between parties settlement risk is also called delivery risk or herstatt risk the time period for a transaction to settlement is meant to reduce settlement risk by ensuring that all information and payments are available to all parties involved the bottom linethe settlement period for securities transactions abbreviated as t 1 t 2 or t 3 etc refers to the number of days after the transaction date when the actual settlement occurs as of 2024 the u s stock market has transitioned to a t 1 settlement cycle meaning that most stock transactions now settle one business day after the trade date this change aims to reduce settlement risk and align with modern technology and practices however it s important to note that certain securities and transactions in various markets or jurisdictions may have different settlement periods 