Securities Settlement Systems

The major securities markets in the United States include the government securities market, the corporate equities and bond market, the market for money market instruments, and the municipal bond market. The instruments traded in these markets are generally traded through organized exchanges or through the over-the-counter dealer markets. Major categories of financial instruments commonly traded include U.S. Treasury securities, government agency securities, securities issued by federal government-sponsored enterprises, corporate equities and bonds, money market instruments such as commercial paper, and municipal (state and local) government securities. Participants in these markets include securities issuers; intermediaries such as brokers and dealers; and investors such as insurance companies, investment companies, non-financial corporations and individuals.

The mechanisms for clearing and settling securities transactions vary by market and type of instrument, and generally involve two types of specialized financial intermediaries: clearing corporations and securities depositories. Clearing corporations provide trade confirmation and comparison services, and multilateral netting of trade obligations; while, securities depositories transfer securities ownership on a gross or net basis against payment via book entry transfers.

Depository institutions play several important roles in securities clearing and settlement. Not only do depository institutions participate in clearing and settlement arrangements for themselves, they also act as custodians, issuing and paying agents, and settling banks for their customers. In addition depository institutions provide credit to clearing corporations, securities depositories, and clearing participants for routine and contingency purposes.


Previous Section
Continuous Linked Settlement (CLS) Bank
Next Section
U.S. Government Securities