Clearing Broker

There are a lot of different players in any transaction. The process of buying and selling securities often involves more than just a buyer and a seller. There can be many parties working behind the scenes.

Once you set up and fund a brokerage account, it is very easy to call your broker or place an order online. Within seconds your order is confirmed. However, the actual execution is a lot more complex.

Your broker is most likely working with a clearing broker, who plays an important role to ensure the trade is settled correctly and that the proper records are kept. Your broker will send your cash and securities to a clearing broker to clear the trade. The clearing broker then works with a clearing corporation that matches and settles trades and handles the confirmation and delivery of the transactions.

One of the main jobs of a clearing broker is to confirm all the information given regarding the trade is correct. But their most important role is to manage the funds involved for each transaction. They maintain custody of the investor’s securities and other assets such as cash in the account. Since only about 5% of retail brokerage firms are self-clearing, most work with a clearing broker.