What is 'Clearing'

Clearing is the procedure by which an organization acts as an intermediary and assumes the role of a buyer and seller in a transaction to reconcile orders between transacting parties. Clearing is necessary for the matching of all buy and sell orders in the market. It provides smoother and more efficient markets as parties can make transfers to the clearing corporation rather than to each individual party with whom they have transacted.


Clearing is the process of reconciling purchases and sales of various options, futures or securities, as well as the direct transfer of funds from one financial institution to another. The process validates the availability of the appropriate funds, records the transfer, and in the case of securities, ensures the delivery to the buyer.

Clearing Houses

In regards to futures and options, a clearing house functions as an intermediary for the transaction, acting as the counterparty to both the buyer and seller of the future or option. This can be extended into the securities market, where the exchange where the trade is taking place or a registered affiliate validates the trade of the securities all the way through till settlement.

Generally, clearing houses charge a fee for their services, known as a clearing fee. This supports their efforts in centralizing the reconciling transactions and facilitating proper delivery of purchased investments.

Automated Clearing House

An automated clearing house (ACH) is an electronic system used for the transfer of funds between entities, often referred to as an electronic funds transfer (EFT). The ACH performs the role of intermediary, processing the sending and receiving of validated funds between institutions.

It is often used for the direct deposit of employee salaries, and can be used to transfer funds between an individual and a business in exchange for goods and services. Traditionally, the sending and receiving bank account information need to be provided, including the account and routing numbers, to facilitate the transaction. This process may also be seen as an electronic check, as it provides the same information as a traditional written check.

Other Uses of Clearing

Clearing can have a variety of meanings depending on the instrument with which it is associated. In the case of check clearing, it is the process involved in transferring the funds promised on the check to the recipient's account. Some banks place holds on funds deposited by check due to the fact the transfer is not instantaneous and may require a period of time to process.

  1. Clearing House

    An agency or separate corporation of a futures exchange responsible ...
  2. Transfer

    A change in ownership of an asset, or a movement of funds and/or ...
  3. Book Transfer

    A book transfer is the transfer of funds from one deposit account ...
  4. Cleared Funds

    Cleared funds are the balance in an account that is able to be ...
  5. Clearing Corporation

    An organization associated with an exchange to handle the confirmation, ...
  6. Telegraphic Transfer - TT

    A telegraphic transfer (TT) is an electronic method of transferring ...
Related Articles
  1. Investing

    5 Money Transfer Tips For Foreign Workers

    If you are working in the U.S. as a foreign worker, here are some tips for sending money back home.
  2. Trading

    Principal Trading and Agency Trading

    Ever wonder what happens behind the scenes when you buy or sell a stock? Read on to find out.
  3. Insights

    Inside National Payment Systems

    Investopedia explains: The global interconnection of U.S. payment systems makes commerical and financial transfers possible.
  4. Personal Finance

    How Credit Card Balance Transfers Work

    The pros and cons of credit card balance transfers.
  5. Personal Finance

    Sending Money? The Top Money Transfer Services

    Need to send money in a hurry? Here's a list of the major players in the money transfer business. Compare rates, times and other details before deciding.
  6. Small Business

    Moneygram Vs. PayPal Vs. Xoom: Who has the Lowest Fees?

    Learn about the different fees associated with leading transfer services PayPal, MoneyGram and Xoom and the types of services that each company provides.
  7. Small Business

    The Buy Side of the M&A Process

    Mergers and acquisitions can anywhere from months to years, depending on the complexity of the deal and the companies involved.
  8. Trading

    What Does a Clearing House Do?

    A clearing house is a third-party agency or separate entity that acts as a go-between for buyers and sellers in financial markets.
  9. Tech

    Best Ways to Send Money to the Phillipines

    When you need to send funds to friends or family in Metro Manila or elsewhere in the Philippines, these four services make it fast and simple.
  1. Are there any regulations on transfer pricing?

    Learn about transfer pricing, its role in intra-business calculations, and how the U.S. government regulates transfer pricing ... Read Answer >>
  2. How do you transfer common stock from one broker to another?

    Understand how common stock assets are transferred from broker to broker using the Automated Customer Account Transfer Service ... Read Answer >>
Hot Definitions
  1. Federal Funds Rate

    The federal funds rate is the interest rate at which a depository institution lends funds maintained at the Federal Reserve ...
  2. Call Option

    An agreement that gives an investor the right (but not the obligation) to buy a stock, bond, commodity, or other instrument ...
  3. Standard Deviation

    A measure of the dispersion of a set of data from its mean, calculated as the square root of the variance. The more spread ...
  4. Entrepreneur

    An entrepreneur is an individual who founds and runs a small business and assumes all the risk and reward of the venture.
  5. Money Market

    The money market is a segment of the financial market in which financial instruments with high liquidity and very short maturities ...
  6. Perfect Competition

    Pure or perfect competition is a theoretical market structure in which a number of criteria such as perfect information and ...
Trading Center