Note 7—Settlement Guarantee Management

The Company indemnifies its clients for settlement losses suffered due to failure of any other clients to fund its settlement obligations in accordance with the Visa Rules. This indemnification creates settlement risk for the Company due to the difference in timing between the date of a payment transaction and the date of subsequent settlement. The exposure to settlement losses through Visa's settlement indemnification is accounted for as a settlement risk guarantee. The Company’s settlement exposure is limited to the amount of unsettled Visa payment transactions at any point in time. The Company requires certain clients that do not meet its credit standards to post collateral to offset potential loss from their estimated unsettled transactions. The Company’s estimated maximum settlement exposure was $68.5 billion for the quarter ended March 31, 2017, compared to $67.8 billion for the quarter ended September 30, 2016. Of these amounts, $3.1 billion and $2.9 billion were covered by collateral at March 31, 2017 and September 30, 2016, respectively.

The Company maintained collateral as follows:



	March 31, 2017		September 30, 2016
	(in millions)
Cash equivalents⁽¹⁾	$	1,324	$	1,295
Pledged securities at market value	154		170
Letters of credit	1,477		1,311
Guarantees	1,369		1,418
Total	$	4,324	$	4,194


⁽¹⁾	Cash collateral held by Visa Europe is not included on the Company's consolidated balance sheets as its clients retain beneficial ownership and the cash is only accessible to the Company in the event of default by the client on its settlement obligations.

The total available collateral balances presented in the table above were greater than the settlement exposure covered by customer collateral held due to instances in which the available collateral exceeded the total settlement exposure for certain financial institutions at each date presented.

The fair value of the settlement risk guarantee is estimated based on a proprietary probability-weighted model and was approximately $3 million and $2 million at March 31, 2017 and September 30, 2016, respectively. These amounts are reflected in accrued liabilities on the Company's consolidated balance sheets.

In the last week of March 2017, the Company experienced delays in the processing and settlement of $1.6 billion of volume in Europe. As a result of this delay, this volume was processed and settled in the first few days of April 2017 instead of in March 2017. The settlement receivable and payable amounts recorded on the consolidated balance sheets at March 31, 2017 are elevated because they include this unsettled activity. The balances in these accounts returned to historical levels in early April 2017 following the settlement of this activity.