Clearing companies - English Clearing Firms, sometimes referred to as clearing houses or clearing corporations, are a type of business that provides settlement and clearing services for various types of financial transactions. Clearing companies operate within the framework of the laws and regulations of the government and other regulatory authorities of the jurisdiction in which they are registered. In some countries, clearing companies offer a wide range of services; in others, their activities may be significantly limited by law.
Typically, clearing companies can handle all types of financial transactions, including investment activity. They act as an intermediary in financial derivatives transactions such as futures or options trading. In addition, they provide a mechanism that allows for a wide range of translations cash between local and foreign market participants.
Clearing companies also service financial transactions that allow individuals and businesses to arrange automatic payments to merchants or creditors on a revolving basis. For example, an individual may sign an agreement with a utility company that gives them the right to automatically withhold monthly payment directly from the current account. In this case, settlements between them will be carried out through an intermediary - a clearing company, which will process invoices issued by the utility company and transfer the required funds. Automated mortgage payments, donations to charities and other non-profit organizations, and membership dues are also processed through clearing companies.
When carrying out investment transactions, clearing companies are involved at every stage of their implementation. They process not only the purchase order, but also ensure delivery of the purchased investment. By verifying that payment and delivery have been completed in in full in accordance with the terms of the agreement, clearing company guarantees flawless execution of operations. For example, on the stock exchange, these functions are completed within seconds, allowing sellers to receive funds immediately and investors to immediately gain control of their shares.
Clearing companies also provide excellent documentation of every phase of any transaction. This makes it possible to use accumulated data to review and analyze the execution of each step of any operation, including exact date and the time, as well as the moment of the beginning and end of the operation. This can be extremely valuable information when parties disagree over the details of a particular transaction.
1. The clearing organization can only be business society created in accordance with the law Russian Federation. The clearing organization has no right to delegate the powers of the sole executive body to another person (manager, management organization).
2. The requirements established by this Federal Law for a clearing organization apply to the central counterparty.
(see text in the previous edition)
3. A clearing organization does not have the right to engage in production, trading and insurance activities, activities for maintaining a register of securities owners, activities for managing joint-stock investment funds, mutual investment funds and non-state pension funds, activities of specialized depositories of investment funds, mutual investment funds and non-state pension funds, the activities of joint-stock investment funds, the activities of non-state pension funds for pension provision and pension insurance.
(see text in the previous edition)
4. When combining clearing activities with the activities of a trade organizer, the clearing organization does not have the right to perform the functions of a central counterparty, as well as combine its activities with brokerage, dealer and depository activities in the securities market, or securities management activities.
(see text in the previous edition)
5. When combining clearing activities with brokerage and dealer activities in the securities market, and securities management activities, the clearing organization does not have the right to perform the functions of a central counterparty.
(see text in the previous edition)
6. A clearing organization that combines clearing activities with other types of activities is obliged to create one or more separate structural divisions to carry out clearing.
7. The central counterparty does not have the right to make settlements on bank accounts for obligations to which it is a party, based on the results of clearing, and in the case of combining its activities with depository activities, it also does not have the right to make settlements on securities accounts for obligations to which it is a party, based on the results clearing, unless otherwise established by regulations of the Bank of Russia.
(see text in the previous edition)
8. A clearing organization that combines clearing activities with other types of activities is obliged to take measures to prevent and resolve conflicts of interest that arise for the clearing organization in connection with such combination. If a conflict of interests of a clearing organization combining clearing activities with other types of activities, about which clearing participants were not notified in advance, led to actions of the clearing organization that caused damage to the interests of the clearing participant, the clearing organization is obliged to compensate losses at its own expense in the manner established by the civil legislation of the Russian Federation. Federation.
(see text in the previous edition)
(see text in the previous edition)
10. The clearing organization and the person performing the functions of the central counterparty are required to prepare annual consolidated financial statements in accordance with the requirements of Federal Law No. 208-FZ of July 27, 2010 “On Consolidated Financial Statements.”
11. The annual report of a clearing organization or a person performing the functions of a central counterparty must contain annual accounting (financial) statements, as well as consolidated financial statements.
13. The use of the word “clearing”, words derived from it and combinations with it in your company name other legal entities, except for clearing organizations, is not allowed, except in cases established by federal laws.
13.1. The use of the phrase “central counterparty”, words derived from it and combinations with it in their corporate name by other legal entities other than central counterparties is not permitted, except in cases established by federal laws.
14. The clearing organization is obliged to store information and documents related to clearing and daily backup such information in accordance with the requirements established by regulations of the Bank of Russia.
(see text in the previous edition)
15. A person performing the functions of a central counterparty does not have the right to attract other persons to exercise its functions, rights and fulfill its obligations.
16. The clearing organization and the person performing the functions of the central counterparty are obliged to ensure the possibility of providing the Bank of Russia electronic documents, as well as the possibility of receiving electronic documents from the Bank of Russia in the manner and within the time limits established by the Bank of Russia.
(see text in the previous edition)
16.1. Requirements for the format, procedure and channels for the central counterparty to transmit information to the Bank of Russia and the composition of such information are established by a regulatory act of the Bank of Russia.
17. The clearing organization has the right to dispose of its own property without restrictions, including making transactions with securities and concluding agreements that are derivative financial instruments.
18. The clearing organization has the right to insure the risk of its liability to clearing participants for non-fulfillment or improper fulfillment of its obligations.
19. A person performing the functions of a central counterparty has the right to insure the risk of its liability to clearing participants for non-fulfillment or improper fulfillment of obligations admitted to clearing.
20. A person performing the functions of a central counterparty has the right to be a participant in organized trading without a license, which, in accordance with federal law, is the basis for participation in such trading.
Few people have a clear idea of what settlement and clearing organizations are. But this does not change the following fact: such financial structures perform objectively important work. Therefore, their activities and characteristics deserve attention.
Key Concepts
If we talk about clearing activities, it should be noted that it is mainly associated with the determination of mutual obligations. In fact, we are talking about offsetting orders for the supply of securities and the settlements that are carried out on them.
We can also say that a clearing organization is a banking-type financial structure that plays the role of a competent intermediary between buyers and sellers. That is, she takes over the purchase process, acting on behalf of a specific person or company intending to purchase securities and vice versa. Such mediation allows full control over the fulfillment of obligations of both parties, which significantly increases the security of the transaction.
Clearing services become relevant immediately after the conclusion of a transaction between two parties, both on the stock market and on the
As for the process of transferring a transaction, which is defined by the term “novation,” it can take from several weeks (over-the-counter markets) to several seconds (stock markets).
Often, a clearing organization is a division of exchanges where securities are traded, which allows the latter to exercise full control over various transactions.
Requirements in Russia
Clearing activities on the territory of the Russian Federation are legal, but at the same time, the organization providing such services must comply certain standards and fulfill key requirements.
So, the functions of a clearing organization can only be performed by a business company that was created in full compliance with Russian legislation. In this case, the right to transfer powers to a sole executor, for example, to the manager of a structure, is initially blocked.
Those requirements that are set out in the Federal legislation regarding activities in the field of clearing also apply to the central counterparty.
At the same time, there are a number of areas in which clearing companies do not have the right to be active:
Insurance, trade and manufacturing activities;
Participation in non-state pension and mutual investment funds;
Maintaining a register of securities owners;
Management of joint stock investment funds;
Activities associated with a specialized depository of investment funds.
It is worth remembering financial reporting. It must be provided in consolidated form by both the clearing organization and the central counterparty. Regarding annual report, then it is necessary to display accounting records for 12 months.
A company providing clearing services can dispose of its property in any way. This means that purchasing securities for money is also permissible.
Possible combination of activities
It is worth knowing that a clearing organization is a structure that, in addition to its main activities, can perform the functions of a trading organizer. But this opportunity is available only if several conditions are met:
Refusal to participate in depository, brokerage and dealer activities on the stock market;
Loss of the right to act as a central counterparty;
Prohibition on management of securities.
If an organization plans to combine the provision of clearing services with activities as a broker, manager or dealer in the stock market, then it cannot be a central counterparty.
Also, when a clearing organization carries out any activity other than its main one, it is obliged to create one, and, if necessary, several structural divisions, and separate ones. Subsequently, clearing will be carried out through them.
Goals
Any organization operating in the clearing field is focused on achieving several key goals. They look like this:
Reducing the time required to carry out calculations;
Reducing the level of costs associated with settlement services for RBC participants;
Maximum reduction of risks accompanying settlements within clearing activities.
Obviously, such organizations make transactions easier and more reliable, which is what attracts many clients to them.
It is worth understanding the following: in order to achieve the above goals, a license from the Central Bank is required, which gives the right to service any settlement transactions at a specific RBC. In most cases, such companies are registered as an LLC, although other legal forms are possible.
It also makes sense to mention that a clearing organization is a structure that can work with one or several securities markets. Moreover, the format of activity is sometimes not only national, but also international.
Key Features
After the trade organizer enters into an agreement with the clearing center, a certain activity is expected from the organization. The essence of the latter can be reduced to a set of relevant functions for which clearing exists:
Checking the availability of initial margin on the trading participant's account;
Receiving orders in the trading system and their subsequent registration;
Acceptance of bids and offers received from clients;
Registration of the transaction that was concluded;
Reconciliation after acceptance of applications for a counter application;
Ensuring full and accurate fulfillment of the obligations of both parties involved in the transaction;
Determination of dimensions and its listing;
Formation of guarantee (special) funds;
Ensuring final settlement between those counterparties that were specified in the contract.
In performing these functions, the clearing organization can represent the interests of two parties subject to their prior consent. Moreover, it has already become obvious that without reconciliation of each concluded transaction, the level of failure of the latter will increase significantly. As a result, large investors will face completely unnecessary difficulties. For this reason, the functions that clearing organizations perform in the securities market are relevant and even necessary.
How is the organization's capital formed?
A company that has chosen the clearing industry must, of course, make a profit. And such a commercial structure forms its capital using the following sources of income:
Registration and support of transactions;
Circulation of funds owned by the organization itself;
Selling information;
Profit from the sale of computing technologies used by the company and software including.
It is fair to note that it is clearing organizations that occupy one of the central places in trading. We are talking about exchange-traded options and it is worth clarifying the point that reconciliation systems will have noticeable differences in different markets. This fact is explained by different transaction volumes, transaction costs and specific market structures.
Types of netting
The activities of clearing organizations include transactions during which netting is used, of two types: multilateral and bilateral.
In the first case, both parties calculate their obligations or claims within a specified period. To determine the position (balance), the difference between the participant's obligation and his claim is recorded. This type of transaction is the most common. Moreover, if the balance is not equal to zero, then the position is considered open and closed in the opposite situation.
The basis of bilateral netting is the pairwise calculation of mutual claims when using securities or cash. Since it is extremely rare to find simultaneous netting of shares and currencies within the same market, this form is used infrequently.
Situation in Russia
If you pay attention to the exchanges operating in the CIS, you will notice that the vast majority of them independently perform the functions characteristic of clearing organizations. At the same time, in the West the situation is diametrically opposite.
It is worth noting that in Russia they resort to the services of third-party credit organizations, but only for cash payments based on clearing results and in the amount of net positions. Exchanges could do this part of the work themselves, but they do not have such an opportunity due to the restrictions on the areas of activity of non-credit organizations by Russian legislation.
As a result, in the vast expanses of the Russian Federation, for full-fledged clearing activities, exchanges require the services of only controlled or subsidiary NPO organizations.
However, a clearing organization is a form of activity available in Russia that is considered legal if it has a license. The latter is issued by the Central Bank.
Results
Based on the information presented above, one can draw an obvious conclusion: activities in the field of clearing are relevant and will remain so as long as transactions are concluded in the securities and foreign exchange markets.
Another borrowed concept that came to us from another language and is firmly entrenched in general use is clearing, which we do not always understand. It seems similar to the name of companies providing cleaning services. In fact, this is absolutely not true.
Clearing: what is it in simple words?
Clearing is a method of mutually beneficial non-cash settlements between several participants: enterprises, countries, banks. Simply put, clearing is procedure for balancing financial turnover without money.
For example, one counterparty gives another nuts worth $200 per ton, and he in return gives cars at a price of $2,000 per ton. In this case, when selling 200 tons of nuts for 20 cars, a balance of mutually beneficial payments will be maintained that does not require money transfers - exchange, barter.
Today, special clearing companies are being created that are authorized to ensure such transactions. Their responsibilities include:
- Drawing up agreements establishing the terms of settlements between the parties.
- Balancing costs.
- Determination of the quantity and type of goods.
- Ensuring the security of all transactions.
Cash payments can only be made between partners in order to equalize the accumulated difference. Clearing organizations are required to obtain a license to conduct their work regulated by the country's central bank.
So, when you are offered to exchange your car for a moped with an additional payment, this will be a clearing agreement.
Types of non-cash payments
The terms of the transaction are different, so there is several types of calculations:
- Simple clearing - registration of obligations of each party and calculation of the cost of the completed transaction.
- Banking is a type of non-cash payment among banks, based on equal netting of payments.
- Multilateral - made between multiple parties to an agreement.
- Currency non-cash payment - provides for international offsets of payments for goods and services of equal value in the clearing currency - the monetary unit chosen by all participants.
During the financial crisis, clearing played an important role. It went beyond the usual and began to work as an auxiliary means of settlements between entrepreneurs through a bank. This made it possible to reduce the shortage of money issued by the state into circulation and restore economic balance.
Advantages and Disadvantages
What is the advantage of this type of mutually beneficial settlements, and why is clearing becoming more and more popular?
- High speed of money rotation.
- Reliability of calculations.
- Low costs for performing cash transactions.
- Ease of payment transactions.
- Clearing allows you to reduce the amount of mutual debts, if any.
Disadvantages - risks to which all parties to the agreement are exposed:
- Significant price fluctuations in the market.
- Violation of time limits by one of the parties to the contract.
- Since non-cash payments are made mainly using electronic systems, the risk of loss associated with the operation of these resources and services.
- The risk of receiving incorrect data from all participants in the chain.
- Risk of missing out on monetary benefits.
- Bankruptcy.
Reducing risk is one of the tasks of clearing companies. For this purpose, they form guarantee funds or insure risks.
Warranty
The fund, which ensures the security of the parties to the agreement in an agreement on non-cash payments, is formed from the funds of the parties themselves. This could be: money, securities.
Contributions go to:
- Ensuring the fulfillment of obligations in the event of insufficient funds in the accounts of a party to the agreement.
- Ensuring the fulfillment of obligations if there is not enough money in the client’s accounts of a party to the agreement.
The procedure for storing and using and creating contributions provides for:
- The amount of money invested in the fund.
- Determining what amounts and for what can be used to ensure the security of the transaction.
- Cash withdrawal scheme.
By decision of the organization ensuring the security of non-cash payments, several guarantee funds can be created for different purposes. Money is placed in accounts owned by a clearing company. Any movement is reported to all parties to the agreement. Thus, clearing becomes a practically safe type of non-cash payments.
NCC Clearing Rules
NCC is a national clearing center that performs the duties of a clearing organization and has extended its functions to all possible markets: stock, commodity, precious metals and urgent. The center assumes possible risks in transactions and acts as an intermediary between the parties. For those who want to become a clearing participant, the bank has created a list of rules: general provisions, rights and obligations on the basis of which it provides services to the clearing organization. Here are some of them:
- Any participant must enter into an agreement for the provision of services and comply with the specified rights and obligations.
- Payments are made in rubles or other foreign currency.
- The amount of payment for clearing services is established taking into account the tariff provided for by the rules of the center.
- Any documents provided by the parties to the transaction will be treated as confidential.
- The clearing center has the right to take measures to determine the sources of receipt of financial resources and property contributed by participants.
- The forms and methods of documents provided by clients must comply with internal NCC rules. Required documents are disclosed on the website.
- Center employees have the right to limit certain transactions on the required billing day. Clients are notified in advance of this decision.
Hello everyone! Ruslan Miftakhov welcomes you, and the topic of our article today is clearing, what it is and why it is needed.
We have already looked at some of the basics of trading activities related to , and in order to complete what we started, we also need to understand this concept.
Changes in the amount of funds that were received or lost as a result of a concluded transaction are displayed on the trading account not immediately after the change in the futures value, but only after clearing.
And today we will look at this process in detail so that novice traders are aware of when to expect their earned money.
So, clearing is a procedure on the exchange associated with the process of changing the amount on the trader’s letter of credit, based on the result obtained from trading operations. In simple words, in the process of such calculation, the financial result of the transaction is determined for its participants.
If the exchange rate on the securities market falls, the seller earns (money is transferred to him from the buyer’s account), and if it rises, the buyer earns (funds are transferred to the buyer from the seller’s account).
The determination of the financial result is based on the mutual financial obligations of the participants in the auction. Basically, all cash flows of counterparties are sought to be reduced as much as possible.
Clearing increases sales volumes and liquidity of assets, and reduces all kinds of risks. In these services, clearing companies act as dealers between trading participants and provide them with orders.
An inseparable part of it is netting - this is when the monetary requirements of clients differ from their obligations, as a result of which the balance is calculated. The advantage of netting is that there is no need to determine the amount of money to be paid.
What are the main types of clearing?
The form of countertrade we are considering is classified according to various criteria:
1. According to the method of fulfilling obligations:
- simple (transfers for each completed trade);
- multilateral (operations are carried out on a group of transactions for which the obligations have become due);
- centralized ( specialized organization accepts all obligations and rights of participants).
2. According to the order of crediting funds:
- fully secured - performing transactions within the funds available on the account before the start of the transaction;
- with partial collateral – the opportunity to participate in trading based on a certain limit calculated from the amount of funds in the account;
- without collateral – concluding transactions without first replenishing a letter of credit ( this type characterized by the most high level risk, and I don’t think it’s worth explaining why).
3. By frequency:
- one-time (as debts accumulate);
- permanent (conducted regardless of the requirements and obligations of its participants).
At the same time, the most effective is a multilateral standing settlement.
4. According to the composition of the parties involved:
- banking – carrying out non-cash transfers between banks with the participation of specialized chambers;
- currency – these are non-cash international payments under international payment agreements, carried out in clearing currency;
- commodity – settlement between the stock exchange and the securities market.
Bank settlement is also divided into types:
- interbranch (intra-bank) – mutual settlements between bank branches;
- calculations carried out by institutions of the Central Bank of the Russian Federation;
- interbank – settlement between different banks.
How does this process happen on the MICEX?
Now we will look at how this process occurs on the Moscow Interbank Currency Exchange (MICEX).
Here, the calculation of financial results from transactions is carried out by a specialized financial institution - JSCB National Clearing Center, at a specially designated time (clearing session).
Clearing on the stock exchange includes a reassessment of risks associated with securities activities, which is accompanied by the crediting or debiting of funds to stock exchange participants, according to the results of their activities.
The MICEX holds three sessions: daytime, intermediate and evening. The main actions for accounting and registering positions are carried out in the intermediate session - from 17:00 to 18:00, and transfers on accounts are made in the daytime (14:00-14:03) and evening (18:45-19:00) sessions.
Basic functions
No process can be fully understood without considering its functions:
- collection and correction of data on all completed tenders;
- review of concluded contracts;
- distribution of responsibilities between bidders;
- transfer of shares to buyers;
- making financial settlements based on the results of the trade;
- provision of guarantees.
What are the main stages?
Clearing begins with the conclusion of a transaction, which is the basis for it. Next, the terms of the contract are checked and compared with the documents provided by the participants (in case of discrepancies, the terms are adjusted), after which the transaction is registered.
Then the volume of trading operations, the amount of cash payments and the remuneration of the clearing organization are determined. During one session, various transactions of buying and selling, and then resale, are carried out.
All information on trading is accumulated and then sent to the clearing house, where securities are exchanged for currency and transferred to the account of the client who wins the trading.
Thus, clearing is the activity of establishing mutual agreements between sellers and buyers of securities on the stock exchange.
Today we looked at the concept of clearing, looked at its main types, stages and functions that it performs.
I hope you found it interesting. And if so, then I will wait for your ratings and comments!
Have a great mood, and see you soon!
Best regards, Ruslan Miftakhov