What Is Meant By Clearing Agreement

Exchanges such as the New York Stock Exchange (NYSE) and nasdaQ have clearing companies. They ensure that equity traders have enough money in their account, whether with cash or margin provided by brokers, to finance the trades they make. The clearing service of these exchanges serves as an intermediary and thus facilitates the transfer of money smoothly. When an investor sells a stock he owns, they want to know that the money is being delivered to them. Clearing companies make sure that happens. If someone buys a stock, they must be able to afford it. The clearing company ensures that the reasonable amount of funds is made available for transactions when someone buys shares. The first method of payment required by the compensation was cheques, as the cheques had to be returned to the issuing bank for payment. Systemically important payment systems (SPIS) are payment systems that have the characteristic that a failure of these systems could jeopardize the functioning of the economy as a whole. In general, these are the main gross or real-time financial compensation systems of different countries, but in the case of Europe, there are some pan-European payment systems.

Target2 is a pan-European SPIs that deals with large interbank payments. Step2, managed by the Euro Banking Association, is a large European-wide retail payment clearing system, which has the potential to become a SPIS. In the United States, the Federal Reserve system is a SPIS. Due to the popularity and widespread practice of clearing agreements, an entire sector has been developed by clearing companies. The practice has developed mainly among investors looking to diversify their portfolios. With respect to clearing agreements, negotiation between all contracts and additional services offered by clearing companies must be authorized through the Options Clearing Corporation. The OCC oversees the clearing process on a number of exchanges, in accordance with the rules established by the Securities and Exchange Commission. Compensation can have a large number of meanings depending on the instrument to which it is bound. In the case of registration compensation, it is the process that is related to the transfer to the recipient`s account of the funds promised at the time of the cheque.

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