Clearing Transactions

Clearing is the process of settling financial transactions. Clearing is a necessity of all transactions in the stock market.
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The system of clearing transactions assures that the buyer of a security receives delivery of the purchased security in a timely manner. Clearing involves simultaneously confirming that there are sufficient funds to complete the transaction, so the seller receives payment immediately. An intermediary, known as a clearing corporation or clearing house, facilitates the process between the two parties from the time a commitment is made until the transaction is settled.

The clearing corporation is responsible for validating, delivering, and settling the securities transaction. The major stock exchanges have in-house clearing firms to handle all clearing activities. Clearing firms reduce credit and counterparty risk for individual traders by ensuring that each party in a transaction can make good on their end of the agreement.

Clearing fees are associated with the transaction process and are typically included in the charges and commissions incurred when trades are executed.

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FAQs

What is a clearing house?

The clearing house is responsible for validating, delivering, and settling the securities transaction. The clearing house acts as an intermediary and facilitates the process between the two parties from the time a commitment is made until the transaction is settled.

Clearing is the process of settling financial transactions and is a necessity of all transactions in the stock market. The system of clearing transactions assures that the buyer of a security receives delivery of the purchased security in a timely manner. Clearing simultaneously confirms that there are sufficient funds to complete the transaction so the seller receives payment immediately.

What is settlement clearing?

Clearing is the process of settling financial transactions. Clearing is a necessity of all transactions in the stock market. The system of clearing transactions assures that the buyer of a security receives delivery of the purchased security in a timely manner. Clearing involves simultaneously confirming that there are sufficient funds to complete the transaction, so the seller receives payment immediately. Settlement occurs when the exchange of money is complete.

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