Once a buyer and seller have agreed a deal, clearing is the process that ensures neither of them defaults while they are organising settlement of the trade – the point where cash moves from the buyer to the seller and the relevant securities move in the other direction.

Clearing houses take responsibility for ensuring that multiple trades in shares, bonds and derivatives can be settled on time. To encourage both parties to a trade to hit the settlement deadline, a clearing house will take a form of safety deposit from each party. This is known as margin.