A clearing member is responsible for handling the buying and selling transactions of Securities that take place at the exchange. They match all the buy and sell orders in the market. A Clearing Member is acting as a Dealer for someone’s own account and acts as a Broker on behalf of others. At the end of the trading day, all transactions are netted (added and settled) with the middlemen.
Clearing takes place at two places. On one side all the Settlements to be delivered or received are netted and on the other side all the funding that originates from these Settlements are netted.
Clearing concerns the management of post-trading and pre-Settlement credit exposures, to ensure that all transactions are made according to market regulations. Processes that are a part of this include reporting, monitoring, covering risk and tax handling. Clearing is necessary because the velocity/frequency of the transactions is higher than the cycle time for handling the underlying transaction.