Clearing members are the members of the Clearing houses those who clears and settles deals via Clearing houses or Clearing corporation.
In also addition, a CM (Clearing Member) may clear and settle all deals either on their account or on behalf of their client’s subjects to the term and conditions prescribed by the Clearing houses.
Whereas, in the case of Capital Market, all members of the stock exchanges need to become the clearing members of the clearing-houses.
Clearing Member Account
In the depository system members of stock exchanges plays an important role or they are an important link among clearing-houses and depository system.
Deals in securities are routed via the clearing member account for settlement in the depository system. Thus, to settle traders in electronic securities, a stock exchanges member must open a clearing account with any Depository Participant.
The Clearing member account is also used to receive securities from the clearing-houses and distributed onward to clients.
There are 3 types of clearing members:
- Pool Account: Shares are received from selling clients in the pool account. And transfer to buying clients is also done from the pool account.
- Delivery Account: Shares received from selling clients are moved from the pool account to the clearing-house via the delivery account.
- Receipt Account: Shares are received in the pool account from the clearing-house via the receipt account.
Procedure for Opening a Clearing Member Account
1. The clearing members can choose any Depository Participant to open a clearing member account. The choice of DP may be based on convenience, comfort, services offered, cost, etc.
2. Then the clearing members approach the Depository Participant of their choice and obtain the relevant account opening form.
3. The Depository Participant will mention the list of documents regarding references that need to be submitted along with the account opening form. The Depository Participant also arrange a copy of the agreement of DP Client.
4. The clearing members submit to their Depository Participant the duly filled in account opening form & DP-client agreement along with documents regarding references specified by the Depository Participant.
5. The Clearing Member also submit a letter from the clearing-house regarding allotment of CM-Id (Clearing Member-Id) to the clearing members. The clearing members also indicate whether they wish to avail of the “standing instruction” facility for receiving credit of securities from the clients’ accounts.
6. Then the Depository Participant will verify whether the account opening form has been duly filled in or not and verify the submitted documents too. For corporate members, the Depository Participant will also verify whether the board resolution for the authorized signatories has been enclosed or not.
7. If the application form and documents both are in order, then The Depository Participant will accept them and give an acknowledgment slip duly signed and stamped to the clearing member. The Depository Participant will execute the agreement and give a copy of it to the clearing member.
8. After completion of all documentation, The Depository Participant will inquire in the business partner (BP) Master in the DPM (software provided by NSDL to The Depository Participant) system, whether the clearing member is already a BP and has opened a clearing member account with some other DP.
9. After The Depository Participant is satisfied that the clearing member does not have CM account with any other DP, it will send a copy of the account opening form, copy of a letter from the clearing corporation regarding allotment of CM-Id and a covering letter (separate for different stock exchanges) stating the DP’s willingness to open a clearing member account for the clearing member to NSDL.
10. NSDL will communicate an Id for the clearing member called CM-BP-Id to the DP of the applicant clearing member. This communication will be received by the DP in its DPM system.
11. The Depository Participant will enter the clearing member details as mentioned in the account opening form in the DPM (software provided by NSDL to the DP) screen provided for the purpose.
For clearing members who have opted for the “standing instruction” facility for receiving credits from the clients’ accounts, the DP will mark the standing instruction indicator for credits as enabled against the clearing account details in the DPM system.
After entering the details in the system, a client account number will be generated by the DPM. The Depository Participant will enter this in the account opening form.
12. The Depository Participant will give a copy of the report listing the client details captured in the DPM database to the clearing member. The report will be generated by the DPM and will contain the following details
- Clearing Member Name
- Client Id
- Date of opening an account.