Clearing corporation
Market basicsThe entity that guarantees settlement of every trade by becoming counterparty to both sides.
In plain terms
Why you never need to know or trust whoever sold you your shares.
1492 terms
Glossary
Every term is defined twice: once the way a filing would put it, and once the way somebody would explain it to you across a table. The second one is usually the one that sticks.
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Novation
Market basicsThe clearing corporation interposing itself as buyer to every seller and seller to every buyer, replacing one contract between strangers with two against a guaranteed central party.
In plain terms
The mechanism that lets you buy from somebody whose creditworthiness you know nothing about. It guarantees settlement, and says nothing at all about the value of what you bought.
Pay-in
Trading & ordersAlso called: Securities pay-in
The deadline by which securities or funds owed on a trade must reach the clearing corporation.
In plain terms
The moment an obligation stops being a number on a contract note. Shares not there by then are a shortage, whatever the holding statement shows.
Pay-out
Trading & ordersAlso called: Payout, Funds pay-out
The settlement step at which funds or securities owed to you are released by the clearing corporation, one trading day after the trade.
In plain terms
Sale proceeds become genuinely withdrawable only after this. Anything the app shows you before it is a trading limit, not cash.
Securities Lending and Borrowing
Trading & ordersAlso called: SLB
A screen-based, order-driven and anonymous market for borrowing shares against a fee, with the clearing corporation standing between lender and borrower.
In plain terms
The only route that carries a short past an expiry date without a paid roll, with tenures running to about a year. The catch is availability: in exactly the names a bearish thesis tends to be about, there may be no lender at any price, and the lender can recall early.
Short delivery
Trading & ordersAlso called: Shortage
A seller’s failure to deliver shares to the clearing corporation by the securities pay-in deadline.
In plain terms
The one settlement failure an ordinary investor can personally cause. The buyer is never left waiting — the clearing corporation buys the shares in and sends the seller the bill.
Counterparty risk
Risk & psychologyThe risk that the other side of a transaction fails to deliver.
In plain terms
On an exchange the clearing corporation absorbs it. Outside one, your claim ranks alongside every other creditor of a private company.