Traditional (physical) settlement
Prior to modern financial market technologies and methods such as depositories and securities held in electronic form, securities settlement had involved the physical movement of paper instruments, or certificates and transfer forms. Payment was usually made by paper check upon receipt by the registrar or transfer agent of properly negotiated certificates and other requisite documents. Physical settlement securities still exist in modern markets today mostly for private (restricted or unregistered) securities as opposed to those of publicly (exchange) traded securities, however, payment of money today is typically made via electronic funds transfer(in the U.S., a bank wire transfer made through the Federal Reserve's Fedwire system). Physical/paper settlement involves higher risks, inasmuch as paper instruments, certificates, and transfer forms are subject to risks electronic media are not more or less such as loss, theft, counterfeit, and forgery (see indirect holding system).
The U.S. securities markets experienced what became known as "the paper crunch," as settlement delays threatened to disrupt the operations of the securities markets which led to the formation of electronic settlement via a Central Securities Depository, specifically the Depository Trust Company (DTC), and ultimately its parent, the Depository Trust & Clearing Corporation. In the United Kingdom, the weakness of paper-based settlement was exposed by a programme of privatisation of nationalised industries in the 1980s, and the Big Bang of 1986 led to an explosion in the volume of trades, and settlement delays became significant. In the market crash of 1987, many investors sought to limit their losses by selling their securities, but found that the failure of timely settlement left them exposed.
