Window Settlement

Window settlement is a form of settlement between dealers whereby trades are settled through the physical comparison of transactions. This is rare in the current market environment and only occurs when smaller dealers who are not members of clearing corporations trade with each other. Usually, an organization such as the National Clearing Corporation (NCC) would handle all settlement of trades and exchange/transfer of assets. When a dealer engages in window settlement, the dealers work directly with each other to physically compare transactions and actual money and stocks are transferred.

Window settlement is performed when dealers who are not members of clearing corporations settle transactions. They do so directly with each other and physically compare their records and exchange hard assets such as cash and certificates. This is rare in the current market environment given the heavy reliance on electronic trading and third party clearing corporations. Typically, window settlement only occurs when one or both the participating parties to a trade are not members of the same clearing firm.

Bert and Ernie run Sesame Brokerage, a small broker that is not a member of a clearing firm. Oscar, an elderly gentleman and client of Sesame Brokerage, wishes to sell shares of Reeding Railroad. Oscar has certificates for his Reeding Railroad shares that he has kept in a safe since 1920. Bert finds a buyer who is also a member of a small brokerage. Instead of engaging in the trade electronically, the two firms get together to exchange the assets and enter the transactions into the client account records.