Clearing & Settlement

The main functions of the clearing organization are assumption of obligations from participants, netting, settlement instruction, and settlement guarantee.

Assumption of obligations

When transactions are effected, sellers have the obligation of delivering securities and the right of receiving cash, and buyers have the obligation of paying cash and the right of receiving securities. The clearing organization assumes these obligations and acquires these rights as a central counterparty (CCP) between sellers and buyers.

As a result of this assumption of obligations, the counterparty for settlement is changed from the original trading counterparty to the clearing organization. Therefore all participants can trade without worrying about the credit risk of the trading counterparty.

Thus, clearing operations become more efficient.


Netting is conducted in trading which is cleared in clearing organization in order to reduce the settlement quantity. The clearing organization offsets the selling and buying amounts of securities and cash to be settled on the same day for mitigation of settlement volume.

Securities are netted while cash is netted on the basis of total amount of payment and receipt.

Settlement instructions

The clearing organization determines the settlement amount, notifies each clearing participant of that amount, and then notifies the settlement organizations so they may conduct the settlement. Depending on the settlement method, there may be cases where the clearing participant gives instruction to the settlement organization in accordance with notification from the clearing organization.

Stocks, etc. cleared by Japan Securities Clearing Corporation (JSCC), and eligible for Japan Securities Depository Center, Inc. (JASDEC), are settled on a DVP basis.

Settlement guarantee

Since the clearing organization, as a CCP, assumes the obligations and acquires the rights of settlement for the executed transaction, it has to finalize settlement between participants even if a participant fails to conduct settlement. This system enables every market participant to trade securely.

If a loss occurs in the clearing organization because a clearing participant fails to conduct settlement, JSCC provides a settlement guarantee scheme as follows.

---The loss is compensated using the defaulting participant's assets, such as its clearing funds deposited with JSCC.

---If such amount is insufficient, the loss is to be compensated by the market, JSCC’s shareholder equity, and other clearing participants.

JSCC adopts a loss compensation scheme with multi-layered financial resources based on the principle of self-responsibility on the part of the defaulting participant.