What is one way DNS systems ensure settlement finality for participants?

In the context of DNS (Deferred Net Settlement) systems, settlement finality is crucial for ensuring that transactions are irrevocably completed at the end of a settlement cycle. One method by which DNS systems achieve this is by holding liquidity in a collateral account. This practice involves participants maintaining a certain amount of collateral to guarantee that their obligations can be met, thereby reducing the risk of settlement failures or defaults.

By utilizing collateral accounts, the system enhances trust among participants, as there are tangible assets available to cover potential obligations. This mechanism ensures that funds are effectively reserved, providing a safety net that contributes to the overall stability and reliability of the settlement process. As a result, participants can be confident that once a transaction has settled, it cannot be reversed, thereby achieving settlement finality.

In contrast, other options such as requiring real-time payment processing or using physical cash transfers do not align with the nature of DNS systems, which typically operate on a post-transaction basis rather than immediate settlement. Additionally, the idea of operating without oversight contradicts fundamental principles of financial regulation and participant security in payment systems.