Clearing is a process where transactions of financial instruments and commodities, often called contracts, are settled, i.e. paid for and delivered. It is the procedure through which the clearing organization becomes the buyer to each seller of a futures contract or other derivative, and the seller to each buyer for clearing members.It may seem simple but includes a number of risks that need to be managed. There are also significant administrative tasks involved.
The aim of clearing is to ensure that all parties meet their obligations and to minimize the risks on individual and business level as well as the systemic risk that can accumulate when a number of individuals and/or organizations are facing the same type of risk. Clearing also aims to facilitate payment and delivery.
- CFTC Glossary. CFTC.