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Clearing Agencies are self-regulatory organizations that are required to register with the Commission. There are two types of clearing agencies -- clearing corporations and depositories. Clearing corporations compare member transactions (or report to members the results of exchange comparison operations), clear those trades and prepare instructions for automated settlement of those trades, and often act as intermediaries in making those settlements.1 Depositories hold securities certificates in bulk form for their participants and maintain ownership records of the securities on their own books.2 Physical securities are maintained in vaults, and ownership records are maintained on the books of the depository. Clearing corporations generally instruct depositories to make securities deliveries that result from settlement of securities transactions. In addition, depositories receive instructions from participants to move securities from one participant's account to another participant's account, either for free or in exchange for a payment of money.
Clearance may be accomplished on a trade-by-trade basis or through netting3 of several trades either bilaterally between the two counterparties or multilaterally among all members of a clearing corporation to yield balance orders reflecting a single day's trades or all open positions to date (continuous net settlement or "CNS").4 The majority of equity trades in the United States are cleared and settled in CNS systems. CNS systems net the securities delivery obligations and the payment obligations of all clearing corporation participants. Clearing corporations notify participants of their securities delivery and payment obligations each day. In addition, the clearing corporation guarantees the completion of all transactions and interposes itself as the contraparty to both sides of any transaction. As with trading systems, the different clearing and settlement systems can be manual, semi-automated, or fully automated and different types tend to predominate for certain securities.
1 Clearing corporations include the National Securities Clearing Corporation, the Fixed Income Clearing Corporation, and The Options Clearing Corporation.
2 Currently, The Depository Trust Company is the primary U.S. securities depository.
3 "Netting" is the process of offsetting expected deliveries and payments against expected receipts.
4 "Continuous net settlement" is an accounting system that summarizes and nets each participant's daily transactions in each issue, including open positions from previous days, to create a single long position or a single short position for the participant.
Selected Releases and Documents
Links to Clearing Agency Websites