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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 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 ?
Liquidity begets liquidity," said Carr, "and as both the Buy side and Sell side continue matching orders in Millennium, we anticipate that success rates will increase and volumes will rise.
NEW YORK -- Goldman Sachs Electronic Trading (GSET) announced today a new functionality for matching orders within its SIGMA X liquidity pool.
In addition, the two and three way matching feature has been enhanced to enable a designated PECOS Administrator to specify if matching orders for a given supplier should be a two-way match between the order and invoice, a three-way match including receipts, or if the workflow plan will make this decision for a particular supplier's orders.
Using Elind's unique strengths with global exchanges, Headstrong can drive this new concept of internal marketplace to the capital markets and help them consolidate order flows and reduce overall trade costs by matching orders and inventories.
HighJump Software's Web-based products help save time and money by eliminating manual reentry of orders; improve customer service through real-time visibility of inventory availability and order status; increase repeat orders and customer satisfaction by accelerating the fulfillment process; and-by matching orders to the appropriate warehouse and parcel carrier-reduce backorders and ensure timely delivery.