A clearing corporation handles the confirmation, settlement, and delivery of transactions. They ensure that transactions are made promptly and efficiently. They are also called as "clearinghouses." While the stock exchange provides the platform for trading to its trading members, it is the responsibility of the clearing corporation to determine the funds and securities obligations of the trading members and ensure that trading members meet their obligations. Post-trade activities of a stock exchange are the responsibility of the Clearing Corporation. The central functions of a clearing corporation are the Clearing and settlement of trades and risk management.

To make the transactions smooth, clearing corporations take the responsibility of becoming a buyer to every seller and a seller to every buyer. When the terms of a financial transaction are agreed to by two investors, whether it is a sale or purchase of a security, the clearing corporation will act as an intermediate and facilitate the purchase at one end and make the sale at the other end of the transaction. They maintain funds for guaranteeing trades and settlement in case a buyer or seller defaults.

The Settlement being a two-way process, it involves the transfer of funds and securities on the settlement date. The clearing corporation works out which members are due to deliver and which members are due to receive on the settlement date. It is a process of determination of obligations, and their discharge by settlement.

Clearing corporations are subject to rules and regulations that are based on the International Organisation of Securities Commissions’ (IOSCO) Principles for Financial Market Infrastructures (PFMIs).

The following are the Clearinghouses in India:-

• National Securities Clearing Corp. Ltd
• Indian Clearing Corp. Ltd
• Metropolitan Clearing Corp. of India Ltd

Clearing Members.

They are entities authorized to do pay-in and receive the pay-out from a Clearing Corporation (CC) or Clearing House against trades done by them or their clients are known as clearing members (CM). The transactions concerning pay-in or pay-out are made through their accounts.

There are two types of clearing members:

• All the members of the stock exchanges are clearing members; and
• Custodians permitted by the stock exchange to act as a clearing member