Clearing Charges

Brokers charge a clearing fee to customers for every trade executed through them. Broker pays this fee to the clearing house. A clearing house is an agency which helps broker and stock exchanges in settling trading accounts, clearing trades, collecting margin and maintaining them, regulating delivery of shares bought/sold and reporting trading data.

The clearing process is a backend process which includes determining the fund and securities obligation of a broker and then settling them with exchanges through the clearing corporation.

Customers do not see clearing charges in the contract note provided by the stockbroker. The contract note is the bill of all the transaction in a day including the transaction amount, brokerage, fees, and taxes. Brokers charge the clearing fee under the transaction charge which includes the Exchange Transaction Charge and the Clearing Charge.

Most brokers use a Professional Clearing Member (PCM) for clearing. PCM's are typically banks or custodians who are authorized by the stock exchanges for clearing and settling traders for other stock brokers.

The clearing charges vary by the broker to broker and also by the trading segment. It actually depends on the deal made between the broker and PCM.

Self-clearing Broker

A broker who is also a clearing member of the exchange is called a self-clearing broker. These brokers are allowed to clear and settle trades for their own clients.

Benefits of self-clearing brokers:

1. Lower trading cost as they do not change clearing charges.
2. Trades are settled faster.
3. They can clear and settle off all deals executed by their clients.

Brokers like ICICI Direct, Zerodha, etc. are self-clearing brokers. They offer zero clearing charges for trades across the trading segments. The trading is cheaper with self-clearing brokers.

Answered on 2019-04-01