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An Introduction to Trading in the Financial Markets: Global Markets, Risk, Compliance, and Regulation by R. Tee Williams

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7

Step 7: Clearing

The next step in the trading process is clearing. Clearing represents a number of substeps, many of which are contingent on how events transpire. For example, in a physical trading environment, an important early task in what we are calling “clearing” involves correcting any problems that have arisen in the trading process. In an active, loud trading pit or on a trading floor, it is easy for misrepresentations or confusion to cause the details recorded by one participant to differ from those of his counterparty. These issues must be corrected.

Before markets began to fragment, and in smaller markets, clearing is often part of an exchange, and error correction may occur within the clearing entity. Because the clearing corporation ...

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