Payment Clearing System
What is Clearing?
- The interbank exchange and processing of payment instructions, with the view of calculating and establishing respective bank debit and credit positions available for settlement. The latter is referred to as netting.
- The process of transmitting, reconciling, potentially including the netting of orders and the establishment of final positions for settlement.
- All banks have an agreement with a central institution: Clearing House.
- Clearing house is a common processing mechanism/entity through which the participating banks agree to exchange transfer instructions for payments.
- The Clearing House maintains the positions of each participating bank.
Clearing system (CSM):
A set of procedures whereby financial institutions present and exchange data relating to transfers to other financial institutions. The procedures often also include a mechanism for the calculation of participants’ mutual positions, potentially on a net basis, with a view to facilitating the settlement of their obligations.