# Clearing, Settlement and Custody > After a trade, clearing confirms and guarantees it, settlement exchanges cash and securities and custody holds assets safely. Learn the process, T+1 and key players. Source: https://learn.tradelabsai.com/industry/clearing-settlement-and-custody/ Track: The Trading Industry · Level: Advanced · Updated: 2026-10-03 Publisher: TradeLabs AI (https://tradelabsai.com). Education, not financial advice. Cite as: TradeLabs Learn, "Clearing, Settlement and Custody", https://learn.tradelabsai.com/industry/clearing-settlement-and-custody/ When you click buy, the trade is executed in a fraction of a second, but the transaction is not finished. Behind the scenes, clearing confirms the details and manages the risk that either side fails, settlement actually exchanges the cash for the securities and custody keeps the assets safe afterwards. This post trade infrastructure is invisible to most traders, yet it is what makes markets safe enough to trade trillions of dollars a day between parties who do not know each other. ## The post trade lifecycle | Stage | What happens | Key players | |---|---|---| | Execution | Buyer and seller agree a price | Exchanges, brokers, venues | | Confirmation | Details are matched and confirmed | Brokers, matching services. See [Execution Reports and Trade Confirmations](https://learn.tradelabsai.com/orders/trade-confirmations/) | | Clearing | Obligations are calculated, netted and guaranteed | Clearing houses (CCPs). See [Clearing Houses and Central Counterparties](https://learn.tradelabsai.com/market-structure/clearing-houses/) | | Settlement | Cash and securities change hands | Central securities depositories, settlement banks | | Custody | Assets are held and serviced | Custodian banks, brokers | ## Clearing A central counterparty (CCP) becomes the buyer to every seller and the seller to every buyer, a process called novation. If one party defaults, the CCP still honours the trade. CCPs protect themselves through initial margin, daily variation margin, default funds contributed by members and strict membership rules. Netting reduces the number and value of payments: a broker that bought and sold many shares of the same stock settles only the net difference. **Example: The power of netting** During one day, a broker's clients buy 1.2 million shares of a stock and sell 1.0 million shares through many separate trades. Without netting, the broker would settle each trade individually. With multilateral netting at the clearing house, the broker settles a single obligation: receive 200,000 shares and pay for them. Across the US equity market, the clearing system nets the large majority of daily trading value, so only a small fraction needs to move, greatly reducing cost and risk. See [Clearing Houses and Central Counterparties](https://learn.tradelabsai.com/market-structure/clearing-houses/). ## Settlement cycles | Market | Typical settlement | |---|---| | US stocks, corporate bonds and ETFs | T+1 since 28 May 2024 | | US Treasuries | T+1 | | EU and UK equities | T+2, with moves to T+1 planned for October 2027 | | Spot FX | Usually T+2 for most currency pairs | | Futures | Daily mark to market cash settlement; final settlement at expiry. See [Settlement](https://learn.tradelabsai.com/markets/settlement/) | | Crypto on exchanges | Internal ledger updates, near instant; on chain transfers depend on the blockchain | Shorter cycles reduce counterparty risk and margin needs but leave less time to fix errors. See [Account Types and Margin Rules](https://learn.tradelabsai.com/industry/account-types-and-margin-rules/). ## Key US infrastructure | Institution | Role | |---|---| | DTCC | Holding company for key US post trade utilities | | NSCC | Clears and nets most US equity trades | | DTC | Central securities depository that holds securities and settles transfers electronically | | OCC (Options Clearing Corporation) | Clears US listed options | | CME Clearing, ICE Clear | Clear futures and some swaps | ## Custody Custodians hold securities on behalf of clients and handle related services: collecting dividends and interest, processing corporate actions, proxy voting, tax reclaims and reporting. Large institutional custodians include BNY, State Street and JPMorgan. For individuals, the broker usually acts as custodian, and in the US holds most securities in "street name" through DTC rather than in the investor's own name. See [Market, Credit and Counterparty Risk](https://learn.tradelabsai.com/portfolio/counterparty-risk/). ## When post trade breaks down | Event | Lesson | |---|---| | Failed settlement (fails to deliver) | Often from short selling without borrowing shares on time. See [Securities Lending and Stock Loan](https://learn.tradelabsai.com/industry/securities-lending/) | | Clearing margin spikes | In January 2021, clearing deposit requirements surged amid meme stock volatility, leading some brokers to restrict buying | | Custodian or broker failures | Client assets can be tied up during bankruptcy proceedings | ## Frequently asked questions ### What is the difference between clearing and settlement? Clearing confirms, nets and guarantees trade obligations; settlement is the actual exchange of cash and securities. ### What does T+1 mean? Settlement occurs one business day after the trade date, the US standard for stocks since May 2024. ### What does a custodian do? Holds securities safely for clients and handles dividends, corporate actions, proxy voting and reporting. Next, learn how shares are borrowed and lent in [Securities Lending and Stock Loan](https://learn.tradelabsai.com/industry/securities-lending/). ## Continue learning - Next lesson: [Securities Lending and Stock Loan](https://learn.tradelabsai.com/industry/securities-lending/) - Previous lesson: [P&L and Performance Attribution](https://learn.tradelabsai.com/industry/performance-attribution/) - Related: [P&L and Performance Attribution](https://learn.tradelabsai.com/industry/performance-attribution/): Performance attribution explains where returns came from: allocation, selection, factors, Greeks and costs. Learn Brinson attribution, P&L explain and how to use it. - Related: [Clearing Houses and Central Counterparties](https://learn.tradelabsai.com/market-structure/clearing-houses/): Clearing houses stand between buyers and sellers so every trade is honoured. Learn how central counterparties work, margin, default funds and why they matter. - Related: [Settlement](https://learn.tradelabsai.com/markets/settlement/): Settlement is when cash and securities actually change hands after a trade. Learn settlement cycles like T+1, cash vs physical settlement and how it affects you. - Related: [Market, Credit and Counterparty Risk](https://learn.tradelabsai.com/portfolio/counterparty-risk/): Learn the difference between market risk, credit risk and counterparty risk, how each is measured and managed, and real cases from Lehman Brothers to FTX. - Related: [Trade Accounting and Reconciliation](https://learn.tradelabsai.com/industry/trade-reconciliation/): Reconciliation checks that internal records of trades, positions and cash match brokers, custodians and clearing houses. Learn the process, common breaks and fixes. - Related: [Securities Lending and Stock Loan](https://learn.tradelabsai.com/industry/securities-lending/): Securities lending lets short sellers borrow shares from owners for a fee. Learn how stock loans work, collateral, borrow fees, recalls, risks and who benefits.