Clearing Broker

A clearing broker is a member of an exchange that acts as a liaison between an investor and a clearing corporation. A clearing broker helps to ensure that the trade is settled appropriately and the transaction is successful. Clearing brokers are also responsible for maintaining the paper work associated with the clearing and executing of a transaction.

Clearing brokers are the backbone of the securities market because their expansive knowledge ensures that the system is dependable and efficient. They must also research and confirm the information they are given and manage funds associated with the transaction.

Clearing brokers not only handle orders to buy and sell securities – they also maintain custody of an account holder's securities and other assets (such as cash in the account). Because they have custody of customer assets, carrying firms must maintain higher levels of net capital than introducing firms—and they are responsible for segregating the customer funds and securities in their custody.

A clearing broker helps to make sure that trades are settled appropriately and that the transaction is successful. Once an order is executed, the clearing broker works with a clearing corporation to make sure all funds are handled and transferred properly. Many consider clearing brokers to be the “backbone” of the securities market because their services help make the system simple, reliable and efficient. Outside of clearing trades, clearing brokers are also involved in researching to confirm the information they are given is exact, and they also manage funds associated with a transaction.

Aside from clearing brokers, other types of broker-dealers do not have the authority to clear transactions. Therefore, other broker-dealers will generally have one clearing broker with whom they work to clear their trades. An introducing broker, meanwhile, introduces their clients to a clearing broker. In this case, the introducing broker will send their clients’ cash and securities to a clearing broker to clear the trade, and the clearing broker will also maintain the customers’ accounts. Introducing brokers earn commissions that are based on volume of trades their client makes or if they are introducing trades on a delivery versus payment basis, their revenue is earned on the spread between the buy and the sell. 

Investment brokers are involved in investment banking by helping to find buyers and sellers of investment securities. They often give investment advice to their clients and earn advisory fees, which could be commission or fee based. Investment brokers are also involved in private placements, in which they receive flat fees or commissions. Market makers, meanwhile, are a unique type of broker-dealer that assist in stabilizing the market by providing liquidity.