I am confused as to why clearing and transfer of stock entitlement are made inside a separate entity instead of inside the stock exchanges themselves.
In: Economics
A clearinghouse acts as a neutral middleman. Everything from the moment a trade is agreed on until payment is exchanged is called the clearing. A clearing house is a highly-regulated entity that helps facilitate the trade and make sure it goes through. To that end, at least historically, the clearing house received both the stock certificate from Party A and the payment from Party B, and then completed the transfer by making sure Party B got their stock certificate they bought, and Party A got the money they were promised for that certificate. That way if one of the two parties decided to try swindling, they don’t already have possession of what the other party was going to give them.
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