Window Settlement

Categories: Trading

Most trading in financial markets involves a clearing house. You buy stock online while sitting in your PJs in Boston. The stock you bought was sold by someone wearing clown shoes and bunny ears (and nothing else) in their bathroom in Arizona. You don't ever have to meet that person (thank goodness), because the transaction gets settled through a clearing house. On the backend, somewhere in the transom of the Internet, the buying and selling get worked out.

However, if there is no clearing house, you would have to meet face to face with the clown shoe/bunny ear person. You'd have to fly to Arizona or they'd have to fly to Boston (or you could meet in Omaha or something). Then, the two of you would have to get together in a coffee shop, where they'd give you the stock certificates and you'd hand over the money.

That rigmarole would represent a window settlement. It's a process for settling a transaction where no clearing house is involved and the transaction has to take place physically.

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