Clearing in simple words

In simple terms, this is a certain exemption from payment by cash payments, which was accepted by a special agreement between two interacting parties. It is based on mutual partnerships between entities and has certain requirements when working with internal and external payments.

Clearing happens:

interbank type;
interstate type;
clearing between organizations.

When working with international companies, clearing acts as a compensatory transaction, where the clearing entity takes over the contractually defined tasks of the acquirer and the seller for the subsequent execution of orders for both parties.

The continuous operation of banking organizations requires the “cleaning” of the obligations that they have. Clearing firms are intermediaries in concluding this type of arrangement. Such firms can carry out work on behalf of the state or on their own behalf, having received a license and permission to operate.

How to reduce the risks of clearing operations

The clearing settlement system was originally created to reduce the risk of financial losses due to ongoing settlements. The intermediary provides more accurate calculations, a guarantee of timely provision of data and fast financial transactions. In many ways, the presence of risks depends on the service procedure or the methodology for resolving disputes.

Thanks to the presence of an intermediary, clearing operations are maximally protected.

Measures to reduce the risks of clearing operations are reduced to the following list of conditions:

Shorten the billing period.
Determine limits on the total volume of settlement transactions for each type (commodity assets, securities, credit debts).
Possibility of canceling a clearing session if one of the counterparties determines that the data provided is unreliable.

The key point is the minimum period of operations. This approach guarantees the absence of losses due to bankruptcies, financial crises, and fraudulent actions on the part of any counterparties. Processing transactions within the established limit makes it possible to resolve major financial issues step by step, and canceling started transactions allows you to promptly terminate mutual settlements without the risk of losing funds.

History of development

The history of the development of clearing begins in the middle of the 18th century in England, when a shortage of gold arose. A little later, against this background, the credit system began to develop and various ways to cover them were implemented. With each subsequent year, the number of loans increased, so the state began to look for ways to control this developing trend.

At the end of the 18th century, the first clearinghouse opened in the capital of England. Over time, companies of this type began to open in the United States of America, France, Germany and other developed countries. In the Russian Empire, the role of the settlement house was played by the State Bank.

Clearing is also a kind of financial procedure where the clearing entity is an intermediary, taking on the responsibilities of both the seller and the buyer at the same time so that the procedure for ordering goods between organizations is more efficient.

Also, the clearing procedure can be performed when concluding trade agreements to settle pricing policies when determining the number and type of goods and payment agreements. These agreements are needed to describe the rights and obligations between the parties, as well as to balance the balance sheet for various types of transactions.

In Russia, clearing organizations are opened thanks to any public or private property that is sold through a commercial form of activity. But there are some institutions that do not operate on commercial grounds.

An example can be given in this case: an enterprise under a contract is engaged in the supply of cotton products to another enterprise at a cost of 250 euros per ton, another enterprise must provide a machine for 2500 euros. It turns out that during the delivery process, one partner must provide 400 tons of cotton products, and the other must provide 20 cars. With such relationships, it is clear that equality of payment transactions is observed and there is no need to pay in money.

Activities on exchanges

As a rule, at each exchange, the structures involved in clearing are their internal divisions. Although sometimes third-party organizations are invited to cooperate.

For this purpose, appropriate agreements are concluded with them. They can function only if there are other participants in the exchange process:

brokers providing access to the exchange;
depositories storing securities certificates.

When, through a broker, orders from traders arrive at the exchange and find a response, the activities of the clearing company begin. It is as follows:

Collect information on all transactions and check them for any discrepancies. Make adjustments if necessary.
Register transactions.
Carry out calculations.
Ensure that buyers of assets receive their money, and sellers receive money.

When futures and options transactions occur, clearing functions become more complex. Here, calculations are made for the guarantee of transactions, and this is not done once, but until the contracts are completed.

If we talk about the Moscow Exchange, then the National Clearing Center (NCC) handles clearing there. This is a joint-stock company, the holders of all shares of which are the MICEX itself.

In fact, this is its structural division, which has received the status of a central counterparty. It began its activities in 2007 by servicing the foreign exchange market, but gradually expanded its functions to all markets available on the exchange.

In addition to direct clearing, NCC provides the following services:

Opens accounts in rubles or foreign currency. At the same time, it is possible for one person to have several deposits.
Provides translations.
If there was a failure in the system and money left the client’s account somewhere, they are searched for.
Provides statements of transactions carried out with finances.
Connects clients to an electronic payment option.
Opens metal accounts if the client wants to conduct transactions with precious metals. They are credited not with money, but with purchased bars.

Types of clearing

There are several types of clearing:

bank clearing. This is a unique structure of non-cash payments between different banking organizations, which are implemented thanks to the work of the settlement chamber. It is carried out using equal payment contributions between organizations;
currency clearing. This is a system of making payments between different countries, which are based on the mutual settlement of goods and services that have the same value;
simple clearing. Drawing up a list of rights and obligations of each party, which describes various calculations and monetary transactions for each clearing transaction;
multilateral clearing. Here the rights and obligations of all clearing participants are determined, and all costs of clearing operations are calculated;
commodity clearing. A system of non-cash payments between organizations for the mutual supply, sale of goods and services, which were made through offsetting the balance sheet of organizations.

Clearing always has a license to carry out work in the financial sector. All work of clearing organizations is carried out under the supervision of the Central Bank or the clearinghouse. The clearing company is a legally registered entity.

An integral element of clearing is netting. This is an activity where the client's monetary demands are calculated against his monetary responsibility. After determining the netting amount, the money remaining after paying all expenses (if any) is calculated for any client. These funds are paid to the enterprise whose profitability is higher.

Bank Vir in Switzerland and European Standard Bank in Panama are financial institutions that provide the opportunity, using their own clearing organizations, to carry out clearing settlements for any company that is involved in the production process. In addition, you can get a clearing loan from them - money that is used only within clearing bank accounts. It is capable of replacing almost 100% of the funds that are subject to new issue.

Such loans are approved at a low interest rate (1-7% per annum). At times, repurchased clearing assets are used as collateral during the loan period. The organization must complete training with these banks for further successful work in the field of clearing operations.

Who is served?

Depending on the type of clearing, clearing companies deal with:

With banks. There are many transactions between these financial institutions. To minimize the flow of funds through accounts, adjustments are made.
With states. Here, currency clearing is carried out - settlements for various obligations of the governments of countries to each other. As a result, the debt is determined and it is also decided in what currency it will be paid. This operation is relevant for countries whose budget is not in very good condition due to economic instability.
With commodity producers, service providers, participants in financial exchanges. Most often, settlements between organizations are one-time in nature as mutual obligations accumulate. In the case of exchanges, their activities are impossible without constant clearing.

Clearinghouses perform calculations of varying complexity. The simplest ones involve only two counterparties, but there may be several. Also, each transaction is sometimes considered separately, but it is possible to consider the totality of obligations.

Participants

Participants in the clearing process are:

intermediary organization , which deals with the preparation of related documentation, obtaining a license agreement to conduct activities in this area and further work;
clearing partner - appears as a legal or natural person who is engaged in signing a clearing agreement with an intermediary;
clearing firm - a place where all completed clearing transactions pass through the system of stock markets, platforms, etc.;
The settlement depository is the main support for valuable excise taxes in the market environment. All payment transactions are made through them;
settlement company – receives the final results of clearing activities and calculates cash flows;
founder of market sales — it is the stock exchange. She is engaged in the implementation of settlement and clearing work.
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To effectively establish and promote positions of valuable excise taxes in market conditions, the place of the main founder of sales can fall on a company that is created from professional participants who know a lot about this area of the market. Such unions are based solely on a voluntary basis.

Clearing of securities works gradually, without sudden upward surges.

First of all, the stock exchange signs an agreement with the help of an intermediary.
Next, all stages and terms of the agreement are clarified in detail, all the main indicators, cost, time intervals, etc. are described in detail.
Afterwards, the agreement goes through a registration process, where mutually beneficial terms are officially accepted.
The next stage is the mutual settlement of the obligations of the parties, where it is determined who is responsible for the services of the intermediary, the commission for the exchange and other representatives of the market environment.
At the last stage, all services provided are paid in full.

In the field of banking organizations, clearing intermediaries are chambers and settlement centers. Clearing houses are the main effective levers of the economic sector, which are independent organizations. She independently accepts the rights and obligations specified in the contract, which allows her to reduce risk situations and provide certain guarantees for a successful outcome.

If the settlement chamber is a branch of the exchange, then it is the controlling body of all related work. It turns out that in this case it is the exchange that will provide a guarantee for the concluded agreements. The chamber also has the full right to act as an independent body by registering itself as a legal entity. In such a combination of circumstances, the chamber and the exchange will cooperate only on the terms of the agreement. A clearing organization of this type has the ability to enter into contractual relations simultaneously with an indefinite number of exchanges.

Legal requirements

The law imposes certain restrictions on organizations that have received licenses for clearing activities in Russia. They do not have the right to additionally engage in:

insurance;
production of goods;
storage of securities;
trading activities.

They are also prohibited from participating in investment and pension funds. But they can fully dispose of their property. This allows, for example, investing your own funds in securities.

When clearing companies serve financial exchanges, they often require central counterparty status. This makes it possible to act as a guarantor of transactions.