Clearing - Financial definition
Financial acronyms
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Concise definition of the term clearing
Clearing is the process of guaranteeing transactions on financial markets from the moment they are executed to the moment of their settlement. It encompasses the establishment of positions, the calculation of net obligations, and ensuring the availability of financial instruments, cash, or both, to secure exposures resulting from these positions.
Comprehensive definition of the term clearing
Clearing is performed by central counterparties (CCPs), which are entities that interpose themselves between the actual counterparties to the trade on financial markets, becoming the buyer to every seller, and the seller to every buyer.
Clearing allows counterparties to trade with each other anonymously without worrying about whether their counterparty will honor the trade, thus eliminating counterparty risk. In the event that a counterparty goes bankrupt, clearing also allows the market to continue trading without the bankruptcy spreading to other counterparties.