In banking and finance, we use the term financial clearing to denote all the activities that take place from the time of making a commitment for transaction to the time it is being settled. You can also call it as the process of verifying information that takes place between two brokers during transaction of securities and the following settlement. Clearing is very necessary to match all the orders of buying and selling in the market and also to turn the promise of payment, whether in the form of electronic payment request or cheque into the movement of real money from one bank to the other. Processes such as risk margining, reporting, tax handling, handling of failure are all a part of clearing. The main purpose of clearing is to increase the efficiency and smoothness of markets by enabling parties to make transfers to the clearing organization, rather than to each and every individual party with whom they have made transactions.

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Edited and Updated 31st May 2014

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