In financial and banking activities there are many terms, the essence of which is difficult to understand by name. One of them is clearing. In simple words, the exchange procedure. Companies, banks, countries can exchange goods, services, securities. A clearing company is an intermediary that brings together sellers and buyers.
The essence of the term
Clearing is a cash settlement system based on the offset of claims and obligations by the parties. Parties to the transaction can be legal entities and individuals. There is interbank clearing within countries. Bidders write checks, banks use these documents to write off and credit funds. The need for offsetting claims has led to the creation of clearing / clearing houses. All checks are sent to the chambers, where they are sorted by bank, the requirements are offset several times a day by the market regulator. Clearing contributes to the acceleration and simplification of the circulation process, its cheapening.
For example, one organization transfers another nuts for $ 200 per ton. In turn, the second organization gives cars for $ 2,000. To maintain balance, the first company must sell 200 tons of nuts and get 20 cars. With such an exchange, there will be no need for cash payments. This is the essence of the concept of “clearing”.
Compliance with the terms of the transaction is monitored by authorized companies whose responsibilities include:
- Drawing up contracts.
- Balancing value.
- Determination of the quantity of goods.
- Securing transactions.
In order to equalize the difference in costs between partners, cash settlements are carried out. Cleaning companies must obtain a license to carry out such work. The activities of such organizations are regulated by the Federal Law “On Clearing and Clearing Activities”.
A bit of history
Initially, clearing was applied on the stock exchange. The process consisted of settlements for securities and the transfer of ownership without moving documents between owners. Today, clearing is a process of changing the amount on a trading account based on the result of trading, that is, the process of determining the financial result of a transaction. Clearing increases sales and reduces risks. The companies that provide these services are dealers between traders and their customers. The balance between cash claims and customer liabilities is called netting. Positive netting indicates a lack of debt to other participants.
Clearing Types
By method of repayment of obligations:
- simple (transfer after bidding);
- multilateral (operations are carried out on a group of transactions);
- centralized (a special organization deals with offsets).
In the order of crediting funds:
- with full security - the operation is based on the available funds in the account;
- with partial security - the volume of operations is calculated on the basis of a certain limit;
- without collateral - the transaction is carried out without replenishment of the letter of credit.
By frequency:
- as the need arises;
- permanent.
By the number of parties involved:
- interbank clearing (settlements can be carried out both between branches of one bank, and between different institutions);
- currency - these are international settlements under contracts;
- commodity - mutual settlement between the exchange and the Central Bank market.
During the crisis, clearing was used as an auxiliary means of settlement between companies. This allowed to reduce the amount of money issued by the state and restore the balance of payments.
Clearing Functions:
- Collection of data on all completed tenders.
- Review of concluded contracts.
- Distribution of duties.
- Stock transfer.
- Settlement based on bidding results.
- The provision of guarantees.
Exchange clearing is ...
At the Moscow Interbank Currency Exchange (MICEX), the National Clearing Center is engaged in the calculation of financial results. This organization is responsible for writing off and crediting funds to the accounts of bidders.
There are three sessions at the MICEX: afternoon, intermediate and evening. The main operations are carried out in an intermediate session - from 17:00 to 18:00, and funds transfers - in the afternoon (14: 00-14: 03) and evening (18: 45-19: 00).
Clearing starts from the moment the transaction is concluded. The center checks the terms of the contract for compliance with the submitted documents. If there are discrepancies, then these conditions are adjusted. Upon completion of the check, the transaction is registered. Based on the volume of the trading operation, the remuneration of the clearing organization is determined. All information on the bidding enters the chamber, where the Central Bank exchanged for currency and credited to the account of the winner of the bidding. That is, in simple words, clearing is the activity of establishing agreements between sellers and buyers of the Central Bank on the exchange.
Domestic Operations
Non-cash write-off and credit operations are carried out at the request of legal entities through a single settlement centers. This process is called interbank clearing. The whole system is based on the fact that banks carry out the same operations, have a similar control unit and a high level of computerization.
The advantage of clearing is that funds are not allocated to correspondent accounts, but are accumulated in the centers. By decision of the Central Bank of the Russian Federation, non-banking institutions can carry out settlements on the basis of a license issued by a regulator. The center needs to get 2 licenses: for banking operations and a technical one, confirming readiness to join the electronic settlement system.
The center may be a chamber established by a commercial bank, the Central Bank, other legal entities and individuals. The objects of clearing can be various documents: payments, bills, transfers, checks, securities, letters of credit, loans, loans, etc.
Settlement for transactions
By scope of application, these forms of clearing are distinguished:
- local - offsetting between institutions in one region, branches;
- nationwide - offsetting customer requirements within one country.
The participants in the process - banks - are calculated according to their obligations in the amount of net positions calculated by the chamber based on netting results. This is the process, as a result of which the amount of monetary claims of the client is correlated with his obligations.
Netting is a part of clearing, a process in which a client’s monetary claims are set against his monetary obligations. Based on the results of netting, a net balance is determined for each client - position.
Clearing Centers
Clearing is a professional activity in determining obligations under transactions with the Central Bank. This process includes the collection, reconciliation, adjustment of transaction data and paperwork. This activity is carried out by an organization licensed by the Central Bank of the Russian Federation. Such a center operates on the basis of an agreement with the auction organizer. Participants in the process are securities market participants who have entered into an agreement with a service center. Based on the results of the tender, money transfers are carried out by the settlement organization on the basis of a license from the Central Bank. Liabilities for transactions are determined by brokers, dealers and other professional market participants. The Center itself determines the transactions for which clearing will be carried out.
The clearing organization provides the following services:
- reconciliation of terms of transactions between participants;
- Set-off of claims for all completed transactions - netting;
- Establishment of a procedure for offsetting claims and obligations of a participant in the securities market;
- disposal of reserve funds of clearing centers created by participants in order to guarantee fulfillment of obligations under transactions.
An important place in the activities of such organizations is given to the risk management system for outstanding transactions. It includes:
- deposit of securities and funds in the accounts of system participants;
- recalculation of net liabilities by eliminating unsecured transactions;
- guarantees, guarantees.
Settlement of transactions based on the results of centralized clearing is carried out by settlement organizations.
Advantages and disadvantages
Clearing by centers makes it possible:
- Increase the speed of rotation of funds.
- Improve the reliability of calculations.
- Reduce the cost of operations.
- Simplify operations.
- Reduce the amount of mutual debts.
At the same time, there is an increase in risks among participants in transactions:
- Price fluctuations in the market.
- Violation of the terms of the contract.
- Increased liabilities due to failures in the operation of electronic systems.
- Bankruptcy.
In order to reduce these risks, clearing centers form special funds.
Guarantees
Funds are formed at the expense of participants in transactions. As an asset, both securities and funds can be used. Contributions are directed towards securing obligations in case of insufficient funds in the accounts of the parties to the agreement. The rules for the creation of funds provide for the size of contributions, directions and the use of funds. In one center, several funds can be created for different purposes. Customer money is deposited in company accounts. Any movement of funds is notified to all parties to the contract.
NCC
The National Clearing Center performs the duties of a clearing company in all markets: stock, commodity, precious metals, and urgent. The center acts as an intermediary and assumes the risks of transactions. Potential participants in the system must fulfill a number of requirements:
- Conclude a service agreement.
- Open an account in rubles or other foreign currency.
- Pay for services at the rates established by the contract.
- At the request of the center, provide documents confirming the source of funds.
The Center, at its discretion, has the right to limit a number of operations.
International clearing
In settlements between participants in foreign trade under interstate agreements, international clearing is used. After offsetting claims by banks, a balance is formed. The conditions for its formation, methods and maturities are prescribed in advance in the agreement. The debt limit depends on the turnover and is fixed at the level of 5-10% of its volume.
Clearing loans are usually provided by countries with an active balance of payments in international settlements. Moreover, the debt can be repaid not only with money, but also with goods. Then we will talk about countertrade. By the volume of operations, clearing may cover 95% of the turnover or be carried out on individual operations.