unwinding

A procedure followed in certain clearing and settlement systems in which transfers of securities or funds are settled on a net basis, at the end of the processing cycle, with all transfers being provisional until all participants have discharged their settlement obligations. If a participant fails to settle, some or all of the provisional transfers involving that participant are deleted from the system and the settlement obligations from the remaining transfers are then recalculated. Such a procedure has the effect of transferring liquidity pressures and possible losses arising from the failure to settle to other participants, and may, in an extreme case, result in significant and unpredictable systemic risks. Also called settlement unwind. See also net settlement