Clearing

Clearing refers to the process of settling transactions between buyers and sellers in financial markets, ensuring that the exchange of assets (stocks, bonds, derivatives, or cash) is completed correctly and efficiently. A clearinghouse acts as an intermediary to guarantee that both parties in a trade fulfill their obligations. This process mitigates counterparty risk and ensures that transactions are processed securely, accurately, and in a timely manner. Clearing is essential for maintaining stability and trust in financial markets.

Example

When an investor buys 100 shares of a stock, the clearing process ensures that the buyer receives the shares and the seller gets the payment through the clearinghouse.