Clearing Firm (Clearing Broker) Definition

Definition

The word clearing firm describes to an organization which works directly with a clearinghouse to execute trades with respect to investors in futures trades. Clearing firms function as an intermediary between traders as well as also the clearinghouse.

Explanation

Also known as a clearing broker, a clearing business works having a market ‘s draining house to do trades with respect to investors. If an trader opens a merchant account with a brokerage house, that’s also a clearing business, the brokerage house could execute trade orders and also maintain their own client’s assets. Brokerage houses which aren’t carrying firms are famous as introducing firms, plus they’ll get an agreement using a carrying business over the market.

Examples of transporting companies that have widespread accessibility into the clearing homes of commodity futures markets contain Barclays Capital, Citigroup Global Markets, Credit Suisse International, Deutsche Bank, Goldman Sachs, HSBC Securities, J.P. Morgan Securities, Merrill Lynch, Pierce, Fenner & Smith, Morgan Stanley, along with Wells Fargo Securities.

Clearing Firms versus Clearing Houses

The use of a clearinghouse is to function as an intermediary between sellers and buyers. They bring order , and exude confidence in, market by promising contract performance. Clearing firms have direct access to the clearinghouse; hence, when clearing firms are on each side of a trade, just 3 parties have been included.

Most traders aren’t clearing firms; for that reason, they need to sort out you to finish a trade. In the event the counter party isn’t a clearing firm, there are a total of five parties to the transaction: a seller, the seller’s clearing firm, the clearing house, the buyer’s clearing firm, and the buyer.