Clearance

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Clearance

The process of settling transactions. Most exchanges have one or more clearing houses, which are charged with matching orders together, ensuring that deliveries are made to the correct parties, and collecting margin money. Because so many trades take place on an exchange in a given day, clearing houses exist to process what each party owes or is owed in a central location so the fewest securities actually change hands. For example, suppose that a broker-dealer buys 1000 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 houses receive a clearing fee in exchange for clearance services.

Clearance.

Clearance is the first half of the process that completes your order to buy or sell a security. During clearance, the details on both sides of the transaction are compared electronically to ensure that the order to buy and the order to sell correspond.

For example, in a stock transaction, the Committee on Uniform Securities Identification Procedures (CUSIP) number, the number of shares, and the price per share must match.

Next, transactions within each broker-dealer are netted down, or offset, by matching its clients' buy orders against sell orders from others of its clients or among a group of affiliated firms. Their records are then updated to reflect the new ownership and account balances.

Any unmatched orders are forwarded to the National Securities Clearing Corporation (NSCC), which instructs selling broker-dealers to provide the relevant securities and the buying broker-dealer to send the cash.

References in periodicals archive ?
ECS is the central clearing services division of EquiLend, a leading provider of trading, post-trade and market data services for the securities finance industry.
Cinnober's TRADExpress Client Clearing aims to make it possible to integrate a bank's entire client clearing service in a single system - across all geographic markets and all asset classes - for OTC as well as listed instruments.
Along with the plan of shifting clearing Services, FG Solutions International will also enhance some of its trading services to better serve the clients.
Credit Suisse becomes the tenth bank to join SGX's new OTC clearing service, which started clearing interest rate swaps on 15 November 2010.
Goldman Sachs announced today the launch of its Derivatives Clearing Services (DCS) business.
CME Group (NYSE: CME), the world's largest and most diverse derivatives marketplace, has started trading and clearing services for three new NYISO five megawatt peak calendar month day-ahead LBMP swap options contracts.
The Chicago Board of Trade today announced plans to establish clearing services for two new over-the-counter (OTC) Ethanol Calendar Swap contracts.
HSBC has provided sub-custody and clearing services to leading institutions for over 50 years, underpinned by a reputation for exceptional client service.
The rise is due to fraudsters increasing their activity before the security of chip and PIN are fully realised, the Association for Payment Clearing Services said.
Gifts averaged pounds 77.55 on credit and pounds 49.24 through debit cards, said the Association for Payment Clearing Services in its annual report.
The Swedish countermine technology and services provider Countermine Technologies AB said on Tuesday (18 January) that its sales of mine clearing services had grown by 142% during 2004.
Sandra Quinn, director of corporate communications for the Association for Payment Clearing Services, said Britain was "truly a plastic society".