Settling and clearing fixed income securities involves matching a buyer with a seller for mutually agreed upon pricing and terms. A fixed income security delivers a fixed rate of return at predetermined intervals. If you loan money as a business with regular payment intervals, this is a fixed income security. You probably know these securities as government and private bonds and corporate bank debt. Sometimes preferred stock can be a fixed income security.
Fixed income trade settlement and clearing takes this debt and provides a trading mechanism on the open market. This makes the process efficient, less risky and usually more profitable than it would be otherwise. This market for fixed income securities has also gone beyond the traditional bonds and stocks. It now includes mortgage-backed securities and collateralized debt obligations, or CDOs. Banks, mortgage companies and insurance companies issue these for varied reasons such as capital relief and risk management. The clearing and settlement process maintains order within these varied transactions. Before your business makes use of these entities, there are a few items to consider:
1. Understand the fixed income clearance and settlement market.
2. Become a member of a fixed income financial association.
3. Seek the counsel of a fixed income clearance and settlement specialist.
Examine the process of fixed income clearing systemsBefore you use a service or product, it is prudent to understand the market in which it operates. The clearing and settlement procedures are just a small part of the larger market in which these securities trade.
Join a cleared fixed income financial associationA membership in a fixed income association can open your business to other opportunities within the industry. At the very least, you can receive feedback from other members on the best clearing services.
Employ the services of a clearing and settlement process companyIf your company chooses to outsource the settlement of fixed income securities, you need to research the primary companies that participate in the fixed income market. Choosing a firm with an unknown history can lead to a loss in market value or an unhappy customer.
- Before you employ the services of a fixed income clearing and settlement service, it is good idea to ask for a list of client references to whom you can ask about the fixed income settlements company.