Clearing

Clearing is a general term that simply means many different things depending on the subject and related industry.

Most commonly, this refers to the reciprocal exchange between banks of checks and drafts, and the settlement of the differences, or the total of claims settled at a clearinghouse.

In finance and banking, the word clearing has different meanings depending on the more specific business model.

Moving checks from the bank where they were deposited to the bank on which they were drawn.

This gives credit to the bank where funds are deposited and a corresponding debit to the account of the paying institution.

The Federal Reserve operates a nationwide check-clearing system. Clearing also is used to signify matching buyers and sellers in stock, futures, and options transactions.

Understanding Clearing

Today, any type of payment can be cleared. A credit card payment is cleared through the payment merchant. It can be said that clearing is the settlement of balances and transactions.

There is also an act of cleaning contracts and risk through A clearinghouse, like CME Clearing, which is an intermediary between buyers and sellers in the derivatives market.

As the intermediary or counterparty, to every trade, CME Clearing acts as the buyer for every seller and the seller for every buyer for every transaction on an exchange.

Stocks are cleared through global stock exchanges similar to the New York Stock Exchange (NYSE).

The clearing is the process of updating the accounts of the trading parties and arranging for the transfer of money and securities.