Partial settlement is the settlement of a securities transaction for less than the full quantity instructed, because the delivering party does not have enough securities, or occasionally because the receiving party does not have enough cash, on the intended date. The available portion is delivered against a proportionate payment, and the instruction remains open for the balance. The alternative is that nothing settles until the whole quantity is available.
The technique is offered by most central securities depositories and securities settlement systems as a way of reducing the size and knock-on effects of a settlement failure. It has gained importance in Europe since penalties for late settlement were introduced, and in markets that have shortened their settlement cycles, where there is less time to cure a shortfall.
How it works
Suppose a seller has instructed delivery of 10,000 shares against payment but holds only 7,000 on the intended settlement date. Without partial settlement, the whole instruction fails and the buyer receives nothing. With it, the system delivers 7,000 shares and debits the buyer for seven-tenths of the cash amount, on a delivery versus payment basis, and the remaining 3,000 stay pending until the seller obtains them.
Systems apply conditions. Both parties must have allowed partial settlement, usually through an indicator on the securities settlement instruction, and the instruction must be matched and not on hold. A minimum quantity or cash value threshold prevents the creation of uneconomically small deliveries. Partial settlement is attempted at set times rather than continuously: on the Eurosystem's TARGET2-Securities platform, for example, it runs in defined windows during the day and at the end of the night-time cycle, after the system has first tried to settle each instruction in full.
Why it reduces fails
Settlement failures spread. A buyer who does not receive securities often cannot deliver them onward to its own counterparty, so one shortfall can cause a chain of failed instructions. Delivering what is available breaks part of that chain: the buyer in the example can meet onward deliveries of up to 7,000 shares. The buyer's exposure to the seller is reduced, the securities become available for lending or as collateral, and the value on which any penalty is calculated falls.
A central counterparty typically settles its net positions with members on a partial basis as a matter of course. For bilateral trades the decision rests with the counterparties, and a seller may prefer not to deliver part of its holding if those securities are needed elsewhere.
Regulatory position
In the European Union, the Central Securities Depositories Regulation requires depositories to offer partial settlement functionality as one of several tools to prevent and address fails, alongside hold and release mechanisms and bilateral cancellation. Its settlement discipline regime, in force since February 2022, imposes a daily cash settlement penalty on the party causing a fail, calculated on the unsettled amount, which gives a direct financial reason to deliver in part.
Industry bodies have promoted two related practices. Auto-partialling lets the system settle whatever is available without further action. Partial release allows a custodian that holds client assets in an omnibus account to release only the quantity belonging to the delivering client, so that other clients' securities are not used to settle the trade. Use of these features has been uneven, and European authorities preparing for the move to settlement one day after trade, planned for October 2027, have identified wider use of partial settlement as a priority. In the United States, which moved to that cycle in May 2024, the depository offers partial settlement of some centrally netted deliveries, while partial delivery of other trades has been limited and largely manual, with an automated service planned for 2027.
Operational considerations
Partial settlement adds work for custodians and their clients. Each partial delivery creates its own cash and stock movement, so one trade may generate several entries to reconcile, and the books must show the settled and unsettled portions separately. Fund accountants and investment managers must be able to handle a trade that is partly settled when calculating positions and available cash.
Other points to manage include:
- Corporate actions. If a record date falls while part of the trade is outstanding, the unsettled portion may give rise to a market claim.
- Client consent. Some investors, particularly funds with rules on minimum lots, instruct their custodians not to accept partial deliveries.
- Financing trades. In repo and securities lending, a partial delivery may leave a loan under-collateralised or require the terms to be adjusted.
- Cost. Depositories and custodians usually charge per settlement movement, so partials can increase fees.
The follow-up of the outstanding balance, including borrowing securities to complete delivery, falls under settlement fail management and fails repair. Pre-settlement settlement instruction matching determines whether the partial indicator has been agreed by both sides.