# How to structure an OTC deal that settles in stages A practical guide for settlement agents, OTC desks, and closing attorneys on designing multi-tranche deal structures and routing each payment with certainty. --- Most OTC transactions look clean on a term sheet and complicated in execution. A buyer and a seller agree on a price. A broker has earned a commission. A settlement agent is holding instructions. A closing attorney has drafted the disbursement schedule. Everything is agreed, and then comes the hard part: money has to move to multiple destinations, in the right amounts, at the right time, with proof that it happened — not once, but across two, three, or four separate closing events spaced days or weeks apart. That is the reality of a staged OTC settlement. It is not a niche scenario. It is the normal structure for any deal large enough to require conditions precedent on each tranche, performance milestones between closings, or regulatory clearances that arrive on a rolling basis. Private placements, large block trades, commodity forwards, tokenized asset deals, and business acquisitions handled OTC all routinely close in stages. The professionals who coordinate those closings — settlement agents, OTC desks, closing attorneys, title companies, escrow officers, and brokers — deserve a clear framework for thinking about each stage and for understanding where payment routing risk concentrates and how to eliminate it. This article lays out that framework, from deal architecture through disbursement mechanics, with practical examples and the role that onchain payment routing plays in giving every party certainty on every tranche.
$10,000,000total deal in the worked example, settled in three tranches
15separate wire transfers on traditional rails, five recipients across three tranches
3onchain transactions for the same disbursements, one per tranche

Figures from the worked example in this article: a three-tranche private block trade with five recipients per tranche.

## Why OTC deals settle in stages in the first place Counterparty risk in OTC is the risk that the other party fails to deliver what was agreed. In a bilateral trade, there is a window between execution and final settlement during which one side has committed, but the other has not yet delivered. A staged settlement structure is, at its core, a deliberate response to that problem. Rather than asking one party to bear all the exposure of a single large simultaneous closing, the deal is segmented into tranches, each with its own conditions and its own payment event. Some contracts settle on a specific future date. Others involve periodic settlements throughout the life of the contract, perhaps every quarter or six months. The logic is identical whether you are dealing with an OTC derivatives position, a large private block of tokenized securities, or a commercial asset sale handled outside an exchange. Each stage represents a contractual checkpoint — a moment at which obligations on both sides are verified, conditions confirmed, and funds released. A tranche closing defines the terms and conditions under which one portion of a multi-part transaction is completed. It typically specifies the date, required deliverables, and any conditions precedent that must be satisfied before the initial funds are released or shares are issued. This may include the execution of key agreements, regulatory approvals, or the fulfillment of certain milestones. From a deal management perspective, staging does several things at once. It gives the buyer the ability to verify delivery at each stage before committing the next tranche of capital. It gives the seller a reliable schedule of cash inflows rather than a single all-or-nothing event. And it gives the settlement agent — the professional responsible for coordinating the actual movement of funds — a series of defined, manageable closings rather than one enormous one. ## The anatomy of a staged deal structure Before looking at how money moves, it is worth being precise about how a staged deal is actually written. Every well-drafted multi-tranche OTC agreement contains the same structural components, repeated for each closing. **Tranche definition.** Each stage of payment must be named and quantified. Tranche I, Tranche II, Tranche III — each with a specific dollar amount and, if relevant, a specific asset quantity attached to it. The core function of this clause is to clearly establish the process and requirements for the initial closing, thereby ensuring both parties understand when and how the first tranche of the transaction will be finalized, reducing the risk of misunderstandings or disputes. **Conditions precedent.** Each tranche closing should only trigger when defined conditions have been met. The payment of the proceeds amount for each tranche on the closing date for such tranche is subject to legal, regulatory, credit and risk approval of the transaction, the delivery of corporate opinions, and the truth and correctness of representations and warranties of each seller. These conditions will differ between tranches — the first closing may require only execution of the master agreement, while the second may require delivery confirmation of the first tranche of assets, and the third may depend on a regulatory sign-off received after the second closing. **Distribution schedule.** For each tranche payment, the deal documents must specify exactly who receives what. The closing agent drafts the settlement agreement which sets forth all the financial transactions. The closing agent also disburses the funds to the seller, the broker, and any other interested parties. In an OTC deal with multiple parties — seller, co-seller, introducing broker, executing broker, settlement agent fee — this means a distinct distribution schedule attached to each tranche. **Fallback and default provisions.** If a condition precedent is not met by a specified date, who controls the funds that have already been committed? What notice must be given? What is the cure period? These provisions matter enormously in staged structures because the gap between tranche closings is precisely the window in which things can go wrong. **Audit trail requirements.** Each tranche must generate documentary evidence of payment and receipt. In traditional wire-based structures, this means bank confirmation receipts, SWIFT references, and signed acknowledgments. In onchain structures, it means transaction hashes on a public ledger. ## A worked example: a three-tranche private block trade Consider a deal that illustrates the moving parts clearly. A seller holds a large block of tokenized real estate trust units. A buyer, advised by an OTC desk, wants to acquire the block but cannot absorb the full position in a single settlement due to their own liquidity schedule. They agree on a three-tranche structure. **Tranche I — $3,000,000 USD (approximately $4,680,000 AUD) — at execution.** This is the deposit and first substantive payment. The seller delivers the first tranche of units. The buyer's payment must split simultaneously to five destinations: | Recipient | Share of Tranche I | Amount (USD) | | --- | --- | --- | | Seller | 75% | $2,250,000 | | Introducing broker | 4% | $120,000 | | OTC desk's fee account | 2% | $60,000 | | Settlement agent's fee | 1% | $30,000 | | Retained holdback to a jointly-controlled address, pending conditions on Tranche II | 18% | $540,000 | | **Total** | **100%** | **$3,000,000** | **Tranche II — $5,500,000 USD (approximately $8,580,000 AUD) — thirty days later, subject to conditions.** The conditions precedent include confirmation that the first tranche of units has cleared their custodian, a clean trustee certification, and sign-off from the buyer's compliance team. On satisfaction of those conditions, the second payment triggers. Distribution again: seller, brokers, fees, and a second holdback, this time smaller. **Tranche III — $1,500,000 USD (approximately $2,340,000 AUD) — on final delivery and release of holdbacks.** This tranche settles the balance and releases both holdbacks into their respective final destinations. The total deal is $10,000,000 USD. Every party has received their share. The transaction is complete. Now look at the complexity that settlement professionals are managing across those three events. Each tranche has a different set of recipients. Each has different conditions. Each generates its own documentation requirement. And between Tranche I and Tranche III, the deal must survive thirty or more days of market conditions, counterparty solvency, and operational risk. Counterparty risk is the likelihood that one party to a transaction will default on their contractual obligation before the final settlement of the transaction's cash flows. In traditional finance, this risk is inherent because trade execution and trade settlement are separated by time — often T+1 or T+2 days. During this window, a counterparty could go bankrupt, causing the trade to fail and potentially triggering a cascade of losses across the market. In a staged structure, that window is not days — it is weeks or months. The risk management implications are significant. ## Where settlement professionals carry the load Settlement agents, closing attorneys, and OTC desks do not merely push buttons. They are the professionals who translate a term sheet into a sequence of confirmed, documented cash movements. In a staged deal, they carry a specific set of responsibilities that compound across each tranche. **Instruction management.** Each tranche has its own set of payment instructions — account numbers, addresses, routing codes, or wallet addresses. Those instructions must be verified at each stage, because a wire sent to an incorrect account, or a payment routed to an address that has changed, is a failed settlement. The first and most critical task is to achieve exact match with the counterparty. Any discrepancy in notional, rate, or date triggers an immediate investigation and break resolution. **Condition verification.** Before triggering each tranche payment, the settlement agent must confirm that all conditions precedent have been met. This requires communication with attorneys, trustees, compliance officers, and sometimes regulators. The agent must produce and retain evidence that conditions were verified before funds moved. **Multi-party disbursement.** Deal parties must agree on complex waterfall distributions to allocate funds regardless of the distribution size. It is especially inefficient to agree on complex waterfall distributions on larger deals where tens or even hundreds of recipients are entitled to portions of the disbursement. Even in a relatively simple OTC deal with five recipients, executing five separate wire transfers per tranche — three tranches — means fifteen payment events, fifteen confirmations, fifteen points of potential failure. **Reconciliation.** After each tranche, every party must confirm receipt. In wire-based settlement, this can take a business day or more. Settlement agents frequently spend significant time chasing acknowledgments from counterparty banks, correspondent banks, and payees. Traditional settlement typically takes one to five business days and involves multiple intermediaries such as clearinghouses, custodians, and correspondent banks. **Documentation and audit.** Every tranche must be documented for legal, tax, and compliance purposes. The settlement agent is responsible for maintaining a complete record of who was paid, how much, from which account, and when — across all tranches. This is intensive, skilled work. The tools available to settlement professionals determine how efficiently and reliably it can be done. ## The specific problem with multi-party disbursement in traditional rails When a settlement agent disburses funds by wire, they execute sequential payments. The first wire goes out. They wait for confirmation. The second wire goes out. They wait. The fifth wire goes out. Hours have passed. Across a three-tranche deal, the agent may be initiating fifteen or more wires, coordinating with four or five banks, and chasing confirmations from recipients in multiple jurisdictions. When settlement takes two days, capital sits idle as collateral against the gap. When counterparties depend on intermediaries to guarantee delivery, they inherit those intermediaries' credit risk. The sequential nature of traditional wire disbursement creates a gap between the first payment and the last. If the first three wires go out but the fourth is delayed by a bank processing cut-off, some parties have been paid and others have not. The settlement agent must now manage an open position — an uncomfortable situation that can generate disputes, particularly if the underpaid party is the seller or a broker with leverage over the next tranche. There is also the problem of error. A settlement agent managing five simultaneous wire instructions is working with five separate bank forms, five reference fields, and five confirmations. Any transcription error — a digit transposed in an account number, a routing code from a previous deal accidentally pasted — can result in a misdirected payment that takes days to recover, if it can be recovered at all. A transaction either confirms and reaches finality, or it reverts entirely. There is no partial settlement, no fails-to-deliver, and no need for a penalty regime to incentivize timely completion. That is a description of onchain settlement — and it stands in direct contrast to the partial, sequential risk profile of multi-wire bank disbursement. ## How onchain payment routing changes the disbursement layer This is where the mechanics of onchain routing become directly relevant to settlement professionals structuring staged deals. The concept is straightforward: rather than executing five sequential wire transfers for each tranche, the settlement agent routes the tranche amount through a smart contract payment router that splits it and distributes it to all parties simultaneously, in one transaction, with immediate finality. This is precisely what shaka.deal is built for. As a non-custodial onchain payment router on Ethereum, shaka.deal takes one incoming payment, applies preset distribution shares, and delivers the correct amount to every party in the same transaction. The router never holds funds — it routes them. The moment the transaction is confirmed on-chain, every party's payment is settled. There is no sequential risk, no gap between first and last payee, and no dependence on multiple banking intermediaries processing in series. For a staged OTC deal, this changes the disbursement layer in three concrete ways. **Simultaneity.** All parties receive their tranche allocation at the same moment, in the same transaction. The seller, both brokers, the settlement agent fee, and the holdback address all receive their correct amounts in a single onchain event. There is no window between first and last payment. **Immutability.** Settlement plays a key role in reducing counterparty risk and ensuring payment finality. Once a transaction is settled, ownership is transferred, and the transaction is irreversible. This eliminates ambiguity and reinforces trust between parties. When a settlement agent processes a tranche through shaka.deal, the transaction hash is the confirmation. It is publicly verifiable, timestamped, and permanent. The agent's documentation obligation is met in a single reference. **Preset shares.** The distribution schedule — who gets what percentage of each tranche — is configured in advance. Smart contracts introduce mechanisms that systematically reduce counterparty risk compared to traditional agreements. By encoding the terms of a deal into immutable logic, onchain finance ensures that execution is conditional only on the pre-agreed inputs, not on human discretion or manual processing. For a settlement agent, this means the disbursement schedule is verified once when the deal is set up, not re-entered manually for each tranche closing. The risk of transcription error across fifteen separate payment events collapses to the risk of a single configuration review. ## Designing the distribution schedule for each tranche Not every tranche has the same distribution structure. This is one of the most important things for settlement professionals to understand and document clearly before the first closing. Consider how shares might vary across tranches in a real OTC deal. **Tranche I** often carries a larger broker and agent share because the deal-initiating costs — legal review, setup, initial due diligence — are front-loaded. A typical structure might see the seller receiving 72% of Tranche I, with the balance covering broker commissions, settlement agent fees, and a holdback reserve. **Tranche II** may carry a reduced broker share if the introducing commission was already substantially paid in Tranche I, and a larger seller allocation as the deal risk profile has been validated by the first successful delivery. The holdback may also shift — the residual from Tranche I's holdback might be released into Tranche II's settlement flow once conditions are confirmed. **Tranche III** is the true-up. It releases the remaining holdbacks, pays any deferred fee balances, and delivers the final seller proceeds. The distribution schedule for this tranche should explicitly enumerate every residual obligation, so that nothing is left unpaid at the conclusion of the deal. Defining milestones clearly prevents disputes about whether conditions have been met. The same principle applies to the disbursement schedule itself. If every party can see, in advance, exactly what share of each tranche they will receive, disputes at closing are eliminated before they start. ## Managing holdbacks and deferred distributions Holdbacks are a common feature of staged OTC deals. A portion of one or more tranches is withheld — held in a jointly agreed address or account — pending satisfaction of a condition that will be confirmed later. Common holdback triggers include: confirmation of regulatory approval for the underlying asset, clean audit sign-off on representations and warranties, or delivery of the final tranche of the asset itself. In traditional wire-based settlement, holdbacks are managed through escrow accounts controlled by the settlement agent or a neutral third-party custodian. The agent holds the holdback amount, monitors the condition, and disburses when instructed by both parties. This is valuable, established, and professionally managed — but it requires the settlement agent to remain in the middle of the deal for the duration of the holdback period, which can be weeks or months. In onchain structures, holdback addresses can be pre-designated wallet addresses with defined release conditions. When those conditions are met, the holdback amount flows to its intended destination as part of the tranche that closes it out. This approach reduces the operational complexity for the settlement agent without removing them from the coordination role — they still verify conditions, they still authorize the release, but the actual disbursement is instantaneous and final when it happens, rather than a new batch of wire instructions. Blockchain-based bilateral settlement reduces counterparty risk by making payment and delivery inseparable rather than relying on a clearing intermediary. For holdback management specifically, this means there is no gap between "conditions confirmed" and "funds received." The confirmation and the payment are the same event. ## Documentation and audit trail across tranches Settlement professionals are, among other things, recordkeepers. Every tranche closing must generate documentation that can support legal review, tax treatment, regulatory inquiry, and dispute resolution. In a staged deal, the documentation burden is multiplied by the number of tranches. The minimum documentation package for each tranche closing should include: the conditions precedent verification record, the disbursement instruction signed by authorized parties, payment confirmation for every recipient, and timestamped evidence of delivery. In a wire-based process, this documentation is assembled from bank portal screenshots, SWIFT confirmation references, and email chains. It is manual, it is time-consuming, and it is vulnerable to gaps. Onchain, because everyone reads the same ledger, back offices stop chasing breaks between a custodian's records and a counterparty's records. When each tranche settlement is routed through shaka.deal, the transaction hash serves as a single, immutable, publicly verifiable record of the entire disbursement event. Every recipient, every amount, and the exact timestamp are encoded in the onchain record. The settlement agent's documentation package for each tranche is the transaction hash, the corresponding disbursement schedule, and the conditions verification record. That is a materially cleaner audit trail than the alternative. ## Practical checklist for staged OTC deal setup Settlement professionals setting up a multi-tranche OTC deal should work through the following before the first closing: **Deal architecture** - Define the number of tranches and the dollar amount of each - Document the conditions precedent for each tranche closing separately - Identify all parties who will receive funds at each tranche, with verified payment addresses or wallet addresses - Draft a distribution schedule as a percentage or fixed amount for each party, per tranche - Define all holdback amounts, holdback addresses, and release conditions **Distribution verification** - Cross-reference every distribution schedule against the deal agreement, term sheet, and any side letters - Confirm all wallet addresses and bank details with each party in advance, in writing - Have the final distribution schedule reviewed by the closing attorney before configuration **Tranche routing configuration (for onchain disbursement)** - Configure the payment router with the correct preset shares for Tranche I before the first closing - Verify the configuration against the distribution schedule with all parties - Repeat the configuration review for each subsequent tranche before its closing date **Post-closing documentation** - Retain the transaction hash for each tranche as the primary disbursement confirmation - Issue distribution statements to all parties immediately after each closing - Update the deal file to reflect each tranche's completion and the outstanding conditions for subsequent tranches When combined with structured approval workflows and pre-agreed settlement terms, OTC execution becomes a repeatable operational process rather than a one-off event. This is exactly the goal for any settlement professional managing a staged deal: reduce the per-closing operational burden so that each tranche closing is predictable, fast, and fully documented. ## The role of the settlement agent in an onchain-routed deal Nothing about onchain routing eliminates the settlement agent's role. It changes one layer of that role — the disbursement execution layer — while leaving the professional judgment and coordination work entirely intact. The settlement agent still verifies conditions precedent. They still communicate with attorneys, buyers, sellers, and brokers to confirm that each tranche is ready to close. They still draft and maintain the deal's documentation. They still act as the professional point of accountability for the entire settlement process. What changes is that when the agent triggers a tranche disbursement through shaka.deal, the payment reaches every party simultaneously and with finality, rather than moving through a sequence of wire instructions over several hours. Trade settlement is streamlined through distributed ledger technology, enabling near-instantaneous and transparent transfers of value. Smart contracts can automatically enforce the terms of the trade, reducing counterparty risk and operational delays while improving overall efficiency and security in financial markets. For a settlement agent handling a three-tranche deal with five payees per tranche, the difference between fifteen sequential wire events and three single-transaction disbursements is a material reduction in operational risk — and a material improvement in the service they provide to the parties in the deal. Round-the-clock settlement means transfers can complete on weekends and outside market hours, so a Friday afternoon trade does not wait until Monday to finalize. In multi-jurisdiction OTC deals where parties are operating across time zones and banking systems, this removes a class of settlement delay that settlement professionals have simply accepted as unavoidable. ## Closing thoughts A staged OTC settlement is not fundamentally more risky than a single-close deal. The underlying risk — counterparty default, payment failure, documentation gaps — exists in both. What a staged structure does is introduce multiple sequential settlement events, each with its own operational surface area. The professionals who manage those events are skilled, experienced, and essential to the deal's completion. The question for those professionals is what tools serve them best. Wire-based multi-party disbursement is proven but sequential, manual, and dependent on intermediary bank infrastructure that introduces delay and error risk. Onchain payment routing through a non-custodial router like shaka.deal delivers the same disbursement outcome — every party paid their correct share — in a single transaction, with immediate finality and a complete audit trail. For large OTC deals structured in tranches, the combination of a rigorously drafted deal agreement, a capable settlement agent, and onchain routing for the disbursement layer is not a theoretical improvement. It is a practical one, visible in the time between "conditions confirmed" and "every party confirmed receipt." In a staged deal that spans weeks and hundreds of thousands or millions of dollars per tranche, that difference is meaningful. Build the architecture correctly. Document each tranche's conditions and distributions in advance. Route each closing through a tool that gives everyone certainty at the moment of settlement. That is how a staged OTC deal should be structured — and how the professionals who handle them can deliver the cleanest possible outcome for every party at every stage.