What does 'settlement' in markets refer to?

The term 'settlement' in financial markets specifically refers to the completion of a trade, which includes the transfer of ownership of the security from the seller to the buyer. This process encompasses all the actions required to finalize a transaction after an order has been executed, ensuring that the securities are delivered and payment is made according to the terms agreed upon in the trade.

During settlement, various checks and balances are performed to confirm that both the seller has the securities to transfer and the buyer has the requisite funds available. This phase is critical because it ensures the integrity and efficiency of the market, reduces the risk of counterparty default, and maintains an orderly financial system. Understanding this process is fundamental for any finance professional, especially those involved in trading or investment operations.

The other options, while related to aspects of trading, do not capture the specific meaning of 'settlement' as it pertains to the actual execution and completion of a trade. For example, finalization of the trading session refers to the closing activities of the market rather than individual trade completion. Agreement on price is an earlier stage in the trading process, and halting trading during a crisis is a measure taken to manage market volatility rather than a component of trade execution.