Chapter 8 Overview of Clearing

Question 1

Introduction

Clearance:

Settlement:

Custody:

Answer 1

Clearance: Matching the details of a trade

Settlement: Money exchanged for securities

Custody: The safekeeping of cash and securities

Question 2

Clearing Overview

DTCC

NSCC FICC
the above are both: clearing Firms

both are Introducing/(Correspondent) Firms
• Omnibus
• Fully Disclosed

Answer 2

same

Question 3

Depository Trust and Clearing Corporation
The DTCC:

Provides what ? and is the parent of what organization?

Answer 3

Provides clearing, settlement, and information services
for its members

Is parent of the National Securities Clearing Corporation
(NSCC)

Transactions among members are completed through
computerized bookkeeping entries

Each member must post a daily collateral requirement
Guarantees settlement
Removes counterparty risk

Question 4

Clearing Agreement

The agreement delineates what?

Answer 4

The agreement delineates the responsibilities of the
introducing and clearing firm regarding the opening/approval
of accounts, sending confirms/statements, and
receipt/delivery of funds and securities (clients receive written
notification of the agreement)

Question 5

If the clearing firm receives a complaint from a client of the
introducing (correspondent) firm, it must:

Answer 5

Forward the complaint to the introducing firm and the
introducing firm’s primary SRO
Provide acknowledgement of receipt to the client

Question 6

Brokerage Arrangements
Prime Brokerage

Answer 6

-When a primary B/D provides a large client (e.g., hedge fund) with the ability to clear all trades through a centralized firm with executions occurring with multiple B/Ds

The prime broke r offers specialized services such as custody, securities lending, margin financing, clearing, processing, operational support, research, and customized reporting