An Overview of Clearing Mechanism of Stock Exchanges of India

Abstract

The advancement of technology drastically improves the efficiency of the clearing mechanism and reduces the clearing and settlement time in the securities market. This paper analyzes the clearing mechanism by depicting its significance, functions, and process. The time of the clearing process has been drastically reduced by the regulatory regime to ensure speedy clearing and settlement of the securities transactions. It also prescribes directions to the stock exchanges to set up clearing corporations to eliminate the risks involved in the clearing and settlement. The clearing and settlement process encounters counterparty risks, which are taken care of the clearinghouse by assuring the buyers take delivery of the securities on time and sellers receive their payment on time. The reduction of clearing time and elimination of risks involved in the clearing mechanism obviously increases the efficiency of clearing as well as the market. Consequently, it also enhances the liquidity and integrity of the market.