There are many different elements to the clearing system, one of which is known as back-to-back clearing. As an international broker, GIS HK Ltd deals in many different markets some of which have a specialist element. Consequently, rather than dealing with their prime broker, some clients will deal through third parties with the securities then delivered to their prime broker. Confused?
Back-to-back clearing – Third party transactions
Back-to-back clearing is part of the clearing and custody services we offer to our clients. In this first context, it involves a client passing an order to their non-prime broker. The broker will buy securities in the market and deliver to the prime broker, in what is known as a back-to-back clearing transaction. Within this transaction there is a receipt and a delivery.
Clearing services play a major role in this type of transaction which effectively ensures securities are delivered to the client’s prime broker in an orderly manner. This ensures that the clearing and custody services used by the client, via their prime broker, can be utilised as normal.
Back-to-back clearing – Intraday trading
Clearing and custody services are vital when it comes to intraday trading and back-to-back clearing. They offer the ability to clear trades on an intraday basis so that they have the same settlement date. This ensures that funds and securities are readily available to investors and is especially important for day traders. These are the type of traders who will potentially buy and sell the same/a range of securities numerous times in one day.
If the transactions were settled on different dates this would impact the securities and funds available for investment. In effect it is a way to net off numerous positions against one settlement date.
Clearing services
While many people automatically assume that clearing and custody services are relatively straightforward, there are a number of potential complexities. The fact that these complexities generally go unnoticed by investors means that the system is working. In theory, the settlement of intraday trades with the same settlement date is fairly straightforward. The delivery of stock from a non-prime broker to a client’sprime broker is a little more complex.
Our ongoing investment in new technology and trading platforms ensures that we can offer full prime services from trade execution all the way through to settlement. As we have mentioned on numerous occasions, custody and clearing services are an integral part of any investment market. Efficient and reliable cleaning services encourage confidence from investors and thereby maintain market integrity. The fact that clearing services only come to the fore if there are any issues, shows how much they are taken for granted.
Summary
Back-to-back clearing describes two very different clearing services, involving intraday dealing and non-prime/prime broker security transfers. Our parent company, GIS UK, has administered in excess of 250,000 transactions over the last three years, with a combined value in excess of £50 billion, many of which have involved back-to-back clearing services.Continuous investment in both technology and the monitoring of regulatory issues means that we abide by both domestic and international regulations in clearing and custody services.