Clearing is often regarded as less glamorous than the creative and headline-grabbing business of trading, but it constitutes the core of modern financial market infrastructure. Clearing services not only benefit individual market participants, but markets as a whole by increasing their efficiency. Actually: ‘this dimension of financial markets is fundamental for the proper functioning of the whole. It is, in fact, the very essence of the markets, because it constitutes the basic process of exchange between buyers and sellers.’

When buyers and sellers execute a trade, they enter into a specific legal obligation, i.e. to buy or sell securities or, in the case of derivatives, another underlying. The life cycle of a trade consists of trading, clearing and settlement. Clearing and settlement are commonly referred to as post-trade services. Commonly mentioned in the same breath, the two terms are often confused or thought to be synonymous. Whilst settlement refers to the fulfilment of the legal obligation, clearing is the process that occurs in between execution and settlement, i.e. during the respective time lag. In the context of trading securities, this time lag is usually minimal, but it can be substantial in derivatives trading.