Clearing Corporation/Agency

A Clearing Corporation/Agency is a part of an exchange or it can also be a separate entity, which performs three main functions, namely, clearing and settling all transactions executed in the stock market, i.e. completes the process of receiving and delivering shares/funds to the buyers and sellers in the market, providing financial guarantee for all transactions executed on the exchange and providing risk management functions. This process is called novation. The clearing agency determines fund/security obligations and arranges for pay-in of the same. It collects and maintains margins, processes for shortages in funds and securities. In this process of settling the trades, the clearing corporation is helped by the clearing members, clearing banks, custodians and depositories.