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Abstract -- 1. Introduction -- 2. Overview of the clearance and settlement process -- 3. Critical design choices -- 4. Planning for improvements: assessing existing systems -- 5. Conclusion -- Bibliography

Capital markets play an increasingly important role in many emerging markets in raising the scarce capital necessary for economic development and growth. In addition, capital markets are important channels for implementing monetary and government debt management policies. An important, but often overlooked, component of capital markets is the clearance and settlement process. Confidence in this process is essential for well functioning markets. Some emerging markets, however, continue to have serious clearance and settlement problems including settlement delays, high transactions and financing costs, and significant credit and liquidity risks. Many factors contribute to such a situation. This paper discusses some of these factors and the important role played by clearance and settlement arrangements. In particular, it describes the basic features of the securities clearance and settlement process for debt and equity securities, and discusses some of the critical design choices facing policy makers and market participants. Finally, the paper presents some guidelines, questions and further references for assessing existing clearance and settlement arrangements.