Few have a clear idea of what settlement and clearing organizations are. But this does not change the following fact: such financial structures perform objectively important work. Therefore, their activities and features deserve attention.
If we talk about clearing activities, it should be noted that it is mainly associated with the definition of mutual obligations. In fact, we are talking about offsetting applications for the supply of securities and the calculations that are performed on them.
You can also say that a clearing organization is a financial a banking type structure that acts as a competent intermediary between buyers and sellers. That is, she takes on the purchase process, speaking on behalf of a particular person or company intending to acquire securities and vice versa. Such mediation allows full control over the fulfillment of obligations of both parties, which significantly increases the degree of security of the transaction.
Clearing services become relevant immediately after the conclusion of a transaction between the two parties in both the stock and over -the-counter markets.
As for the transaction transfer process, the term “novation” is used to define it, it can take from several weeks (over-the-counter markets) to several seconds (stock).
Often, a clearing organization is a division of exchanges where securities are traded, which enables the latter to exercise full control over various transactions.
Requirements in Russia
Clearing activities on the territory of the Russian Federation is legal, but at the same time, the organization providing such services must meet certain standards and fulfill key requirements.
So, the functions of a clearing organization can only be performed by a business company, which was created in full compliance with Russian law. In this case, the right to transfer powers to the sole performer, for example, the structure manager, is initially blocked.
Those requirements, which are fixed in the Federal legislation regarding activities in the field of clearing, also apply to the central counterparty.
At the same time, there are a number of areas in which the clearing companies are not entitled to show activity:
- insurance, trade and production activities;
- participation in non-state pension and mutual investment funds;
- maintaining a register of securities owners;
- management of joint stock investment funds;
- activities associated with a specialized depository of investment funds.
It is worth recalling the financial statements. It should be provided in consolidated form by both the organization of clearing settlements and the central counterparty. As for the annual report, it is necessary to display accounting for 12 months.
A company that provides clearing services may dispose of its property in any way. This means that the purchase of securities for own funds is also acceptable.
Possible combination of activities
It is worth knowing that a clearing organization is a structure that, in addition to its core business, can perform the functions of a trading organizer. But such an opportunity is available only if several conditions are met:
- refusal to participate in depository, brokerage and dealer activities in the stock market;
- loss of the right to act as a central counterparty;
- a ban on the management of securities.
If an organization plans to combine the provision of clearing services with activities as a broker, manager or dealer in the stock market, then it cannot be a central counterparty.
Also, when a clearing organization carries out any activity other than the main one, it is obliged to create one, and if necessary several structural units, and separate ones. Subsequently, clearing will be carried out through them.
Any organization carrying out activities in the field of clearing is focused on achieving several key goals. They look as follows:
- reduction of the time required for settlements;
- reduction of the level of costs associated with settlement services for RBC participants;
- maximum reduction of risks accompanying settlements in the framework of clearing activities.
Obviously, such organizations make transactions easier and more reliable, and this is what attracts many customers to them.
It is worthwhile to understand the following: in order to achieve the above goals, you need a license from the Central Bank, which gives the right to service any settlement transactions at a particular RBC. In most cases, such companies are registered as LLCs, although other legal forms are possible.
It makes sense to mention that a clearing organization is a structure that can work with one or several securities markets. Moreover, the format of activities is sometimes not only national, but also international.
After the organizer concludes a contract with the clearing center, a certain activity is expected from the organization. The essence of the latter can be reduced to a set of relevant functions for which clearing exists:
- checking the availability of initial margin in the account of the bidder;
- receiving applications in the trading system and their subsequent registration;
- acceptance of bids received from customers;
- registration of the transaction that was concluded;
- reconciliation after accepting applications for a counter application;
- ensuring the full and accurate fulfillment of the obligations of both parties involved in the transaction;
- determination of the size of the variation margin and its transfer;
- Formation of guarantee (special) funds;
- ensuring the final settlement between those counterparties that were specified in the contract.
Performing these functions, the clearing organization may represent the interests of two parties with their prior consent. Moreover, the fact that without reconciling each transaction concluded, the level of disruption of the latter will increase significantly. As a result, large investors will face completely unnecessary difficulties. For this reason, the functions that clearing organizations perform in the securities market are relevant and even necessary.
How is organization capital formed
A company that has chosen the scope of clearing, of course, should make a profit. And a similar commercial structure forms its capital using the following sources of income:
- registration and transaction support;
- the circulation of funds owned by the organization itself;
- sale of information;
- Profit from the sale of technology-calculations used by the company and software including.
It will be fair to say that it is the clearing organizations that occupy one of the central places in the trading of derivative securities. We are talking about stock options and futures contracts. It is worth clarifying that moment that reconciliation systems will have noticeable differences in different markets. This fact is explained by different volumes of transactions, the cost of operations and a specific market structure.
The activities of clearing organizations include conducting transactions during which offsets are used, and of two types: multilateral and bilateral.
In the first case, both parties calculate their obligations or claims within the specified period. To determine the position (balance), the difference between the participant’s obligation and his demand is fixed. This type of transaction is the most common. Moreover, if the balance is not equal to zero, then the position is considered open and closed in the opposite situation.
The basis of bilateral offsetting is a pairwise calculation of mutual claims when using securities or cash. Since it is extremely rare to find offsets for stocks and currencies within a single market, this form is not often used.
The situation in Russia
If we pay attention to exchanges operating in the CIS, we will notice that the vast majority of them independently perform the functions characteristic of clearing organizations. Moreover, in the West the situation is diametrically opposite.
It is worth noting that in Russia they resort to the services of third-party credit organizations, but only for cash payments based on clearing results and in the amount of net positions. Exchanges could do this part of the work on their own, but they do not have such an opportunity due to the limitation of the areas of activity of non-credit organizations by Russian legislation.
As a result, in the vast expanses of the Russian Federation for full-fledged clearing activities, exchanges need the services of only controlled or subsidiary organizations of NPOs.
Nevertheless, a clearing organization is an available form of activity in Russia that is considered legal if a license is available. The latter is issued by the Central Bank.
Based on the above information, an obvious conclusion can be made: the clearing activity is relevant and will remain so until the transactions are concluded in the securities markets, as well as in the foreign exchange markets.