Clearing refers to the administrative process initiated when an agreement to buy or sell a derivatives instrument is made through the exchange. 

Matching
Central counterparty
Cash settlement
Delivery

Matching means that the parties agree on the conditions of the transaction i.e. what has been bought or sold, price, quantity, etc. Central counterparty clearing is when the clearing organization becomes the legal counterparty in a transaction. Cash settlement refers to settlement of premiums, fees, mark-to-market and other cash settlements. Delivery of the underlying stocks or cash settlement occurs after expiration or premature exercise.

As central counterparty, NASDAQ OMX Derivatives Markets:

Participates as counterparty in every transaction, which is commonly referred to as a ‘counterparty undertaking’.
Monitors the market and market participants.
Provides a structured procedure and resources for dispute resolution. Buyers and sellers are not forced to take legal action against one another, as the clearing organization offers independent legal enforcement of contracts.
Reduces the number of payments due to netting and handles all payments not relating to deliveries on behalf of members.
Provides secure and standardized transaction processing.
Enables a clearing member to replace the counterparty risk between different market participants with the counterparty risk towards the clearing organization – even for instruments traded outside the exchange.

Cash settlement in SEK:

Riksbank – the Swedish central bank, runs electronic cash clearing system for banks known as K-RIX, which is used to settle cash transactions in SEK on the settlement day. These cash settlements relate to premiums, fees, mark-to-market and other cash settlements not relating to delivery. The Swedish central securities depository (CSD) handles settlements involving all payments relating to deliveries on the Swedish market.

Settlement is carried out per clearing member and payment bank. Members that are not participants in the payment or the CSD system must use an institution that is such a participant to be able to fulfil their obligations with respect to settlement and delivery.

Settlement of most fixed income forwards at NASDAQ OMX is a combination of:

Cash settlement of the difference between the forward price and determined fix.

Delivery of underlying securities through the CSD.

For more information, see NASDAQ OMX Clearing »