What Does A Clearing Member Do?
Clearing partners or members help clear and settle transactions in securities.
This is a series of explainers to educate and inform new investors. In association with Dun & Bradstreet India as knowledge partner.
Clearing Partners/Members: Definition, Meaning & Basics
In stock exchanges, there are different types of clearing partners or members who help clear and settle transactions in securities.
According to information on the NSE website, the Clearing Member performs the following functions:
- Clearing - Computing obligations of all his trading members by determining positions to settle.
- Settlement - Performing actual settlement. Only funds settlement is allowed at present in Index as well as Stock futures and options contracts
- Risk Management - Setting position limits based on upfront deposits / margins for each trading member and monitoring positions on a continuous basis.
There are several categories of Clearing Members.
Trading Member Clearing Member: This is a clearing member who is also a trading member. They clear and settle their own proprietary trades, their clients' trades as well as trades of other trading members and custodial participants
Professional Clearing Members: These members are not trading members, however they clear trades of clients. PCMs are typically banks, custodians etc.
Self Clearing Members: They are also trading members but clear and settle only their proprietary trades and their clients' trades.
The stock exchanges have eligibility norms for all clearing members.
Visit the Financial Terms section for more.