Clearing and Settlement Procedure
CLEARING AND SETTLEMENT
CLEARING: Most stocks that are sold the “regular way” require delivery of certificates within three business days. On rare occasions a sale may be made as a “cash” transaction, requiring delivery the same day, or as a “seller’s option”, giving the seller the choice of any delivery day within a specified period (typically, no more than 60 days). On other occasions extensions to the three-day limit are granted.
It would be extremely inefficient if every security transaction had to end with a physical transfer of stock certificates from the seller to the buyer. Fortunately, certificates can be almost completely immobilized. The Depository Trust Company (DTC) maintains computerized records of the securities “owned” by its member firms (brokers, banks, and so on). Members’ stock certificates are credited to their accounts at the DTC and the until a member withdraws them. Whenever possible one member will “deliver” securities to another by initiating a simple book-keeping entry in which one account is credited and the other is debited for the shares involved Dividends paid on securities held by the DTC are simply credited to members accounts based on their holdings.
Clearing Process:
The Process of clearing can be defined as : “The preparation through matching, recording and processing instructions of a transaction for settlement”.
Settlement can be defined as: “The exchange of cash or assets in return for other assets or cash and transference of the ownership of those assets and cash”.
After a trade has been executed, securities and money must change hands within five business days of the trade date, on what is called settlement date (Saturdays, Sundays, and holidays are excluded). For example, a trade on a Wednesday is settled the following Wednesday. Basically, two tasks are carried out in the clearing process: Trade Comparison and Settlement.
1. Trade Comparisons: The largest clearing corporation is the
CLEARING: Most stocks that are sold the “regular way” require delivery of certificates within three business days. On rare occasions a sale may be made as a “cash” transaction, requiring delivery the same day, or as a “seller’s option”, giving the seller the choice of any delivery day within a specified period (typically, no more than 60 days). On other occasions extensions to the three-day limit are granted.
It would be extremely inefficient if every security transaction had to end with a physical transfer of stock certificates from the seller to the buyer. Fortunately, certificates can be almost completely immobilized. The Depository Trust Company (DTC) maintains computerized records of the securities “owned” by its member firms (brokers, banks, and so on). Members’ stock certificates are credited to their accounts at the DTC and the until a member withdraws them. Whenever possible one member will “deliver” securities to another by initiating a simple book-keeping entry in which one account is credited and the other is debited for the shares involved Dividends paid on securities held by the DTC are simply credited to members accounts based on their holdings.
Clearing Process:
The Process of clearing can be defined as : “The preparation through matching, recording and processing instructions of a transaction for settlement”.
Settlement can be defined as: “The exchange of cash or assets in return for other assets or cash and transference of the ownership of those assets and cash”.
After a trade has been executed, securities and money must change hands within five business days of the trade date, on what is called settlement date (Saturdays, Sundays, and holidays are excluded). For example, a trade on a Wednesday is settled the following Wednesday. Basically, two tasks are carried out in the clearing process: Trade Comparison and Settlement.
1. Trade Comparisons: The largest clearing corporation is the