Your stock transaction is just one of millions
that take place each trading day, initiated through approximately
5,000
brokerage firms.
About 250 of those firms are self-clearing,
which means they compare the details of their transactions themselves.
The non-clearing firms — also known as correspondent firms
— forward their orders to one of the approximately 80 clearing
firms that handle comparison for other firms. By federal law,
each of those transactions is generally settled — which means
paid for and delivered — within three business days.
Here's the first challenge:
The total number of shares investors buy during each day must
equal the total number of shares other investors sell.
Here's the second: The money spent
for those transactions must equal the amount received.
Here's the third: All those shares
and all that money have to move, so that buyers end up with
shares and sellers end up with money.
That's where clearing and settlement
come in. In North America most clearing and settlement is handled
through the National Securities Clearing Corporation (NSCC) and
the Depository Trust Company (DTC), subsidiaries of the Depository
Trust & Clearing Corporation (DTCC). DTCC is owned by the
clearing firms and markets that depend on it to handle the exchange
of securities and money that must occur to complete a trade.
Early closing Before the NSCC was created in 1976, the
NYSE
closed Wednesdays and shortened trading hours on other
days to have time to clear and settle the 10 to 12
million shares that were changing hands every trading
day. In 2002, the daily average was more than 3 billion
shares traded, in 17 million reported transactions.
