Clearing Corporation

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An agency or corporation on an exchange that settles transactions for a fee. Most exchanges have one or more clearing corporations that are charged with matching orders together, ensuring that delivery is made to the correct party, and collecting margin money. Because so many trades take place on an exchange in a given day, clearing corporations exist to process what each party owes or is owed in a central location so that the fewest securities and the least amount of money actually change hands. For example, suppose that a broker-dealer buys 1,000 shares of a security and then, in a completely separate transaction, sells 700 of the same shares. At the end of the trading day, the clearing house would determine that the broker-dealer must only buy 300 shares as the other 700 belong to another party. Clearing corporations receive a clearing fee in exchange for these services.

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