Money Market Instrument Clearing and Settling

The money market industry is a world of systematic exchange, transfer and payment. The trading system requires some means in order to transfer the instrument and be able to make a payment. In general, there is a need for clearing and settling the transaction which are operational tasks and are back-office in functions. This may sound too intricate ad delicate for those who do not belong to the money market industry but knowing how this happens would eventually make you understand how the borrowing-lending opportunities are made possible in liquid states of money.

Basically, the clearing process is referred to as the trade process and is responsible in establishing what both parties of the trade owe each other. In this case, settlement would pertain to the transfer of the values in order for the trade to be completed. The clearing and settling process initiate with the transfer of the trade details to the back office. The back office will then compare and match the details between the seller and the buyer to make sure that the agreement between the parties involved is clear regarding what items are to be traded and what terms are entailed with the trade.

This back office function will certainly iron out details and will make sure that there will be no problems regarding the delivery of what has been traded. During the clearing and settling process, banks and interbank payment systems are also involved. The mechanism involving this financial institution is clearly depicted as the banks connect both participants in the money market through different ways.

Banks are very essential features of the money market mechanism. They act as agents responsible for issuing and redeeming the instruments and maintaining the registration records. They serve as mediators between the buyer and the seller. Banks are also referred to as the basic entity that secures the instruments. Also known as the money market instrument custodians, banks act as safe keepers of these instruments for the investors.

Finally, banks have this very essential role of specializing in the clearing process. They are not allowed to reflect what transpired in the transfer of the instrument from one party to another. They are also responsible for securing the payment and transferring it for the securities. Bothe the dealer and buyer can have two types of accounts which they can maintain. These two kinds include the funds account and the securities account.

Clearing banks are expected to do the task of transferring the securities from a dealer to another and are expected to also to also transfer payment from the other party’s funds account towards that of the one also involved. If a particular clearing bank is not used by the dealer, then it is expected that the trade would involve a transaction between two banks.

Money markets are not your usual savings account. They have higher minimum required balance which ranges from $1000 to $2500, they pay higher interest rates and the investor is allowed to make three to six withdrawals every month. This means that you can have access to your funds anytime within a thirty-day period.

With the money markets, one can perceive that you can always do something better with you hard earned money than just spending them over luxuries which don’t just last in snap of a finger but also put your efforts into waste. Money can grow as long as you are able to find that investment ally that suits your lifestyle and needs. Understanding how the money market transfers your funds from one party to another and how the clearing and settling is done will help in maximizing your potential earnings.