A settlement system is a financial framework that facilitates the transfer of funds and securities between parties after a transaction. It ensures that the buyer receives the purchased asset while the seller receives payment, effectively completing the trade. This system is crucial for maintaining trust and efficiency in financial markets. There are various types of settlement systems, including real-time gross settlement (RTGS) and net settlement systems. Central banks often oversee these systems to ensure stability and security. By streamlining the settlement process, these systems help reduce risks and enhance the overall functioning of the financial ecosystem.