What risk does a DNS system potentially introduce compared to RTGS?

The option regarding increased settlement risk in the context of a DNS (Deferred Net Settlement) system compared to an RTGS (Real-Time Gross Settlement) system highlights a critical difference in how transactions are processed and settled.

In a DNS system, transactions are accumulated and settled in batches at specific intervals, rather than being settled individually and immediately as they are in RTGS. This batching process can lead to a time lag between when a payment is initiated and when it is fully settled. During this period, there is a risk that one or more of the parties involved may default or become insolvent before the settlement is completed. Such a situation increases the likelihood that the receiving party may not ultimately receive their funds, thus heightening the overall settlement risk.

In contrast, RTGS systems settle transactions in real time and on a gross basis, meaning each transaction is completed immediately and the risk of default is significantly reduced at the point of settlement. Therefore, the inherent design of DNS systems, which allows for delays in settlement, introduces an additional layer of risk that participants must navigate, making the choice of increased settlement risk accurate in this context.