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Commodities Market
Clearing and Settlement
Learning Outcome
5
Differentiate between various settlement methods used in markets
4
Identify how clearing systems help in reducing market risk
3
Describe the step-by-step clearing and settlement process.
2
Explain the role of clearing houses (CCP) in trade processing
1
Understand clearing and settlement in financial markets.
What is Clearing and Settlement?
Clearing
It means the process of checking and preparing trades to make sure both sides are ready for the final exchange of money and securities
Settlement
It means the final step where payment and delivery actually happen — money is transferred, and securities are delivered to complete the trade.
In short, it’s the moment when the deal is fully completed.
You buy 100 shares of Reliance today.
Clearing confirms that you owe ₹2,50,000 and the seller owes you 100 shares.
Settlement is when that money actually leaves your account and those 100 shares actually land in your demat account — currently done by the next working day (T+1).
Role of Clearing Houses
A clearing house (also called a Clearing Corporation or Central Counterparty / CCP) sits between the buyer and the seller in every trade. In India, this role is played by NSE Clearing Limited (NSCCL) for NSE trades, Indian Clearing Corporation Limited (ICCL) for BSE trades, and CCIL for government securities and money market deals
Importance of Risk Reduction
Clearing and settlement exist mainly to protect the financial system from one weak link bringing down everyone else. They reduce risk in these ways:
Summary
5
T+1, DvP, Net, and Cash Settlement ensure smooth trading
4
Margin collection and netting help in managing financial risk
3
Clearing houses guarantee trade completion.
2
Settlement completes the transfer of funds or asset delivery
1
Clearing verifies trades and calculates obligations between parties
Quiz
Which institution acts as the buyer to every seller and seller to every buyer?
A. Stock Broker
B. Clearing House
C. Commercial Bank
D. Depository
Quiz-Answer
Which institution acts as the buyer to every seller and seller to every buyer?
A. Stock Broker
B. Clearing House
C. Commercial Bank
D. Depository
Clearing and Settlement
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