Definition

The clearing and settlement system (in this text) means finalizing the financial position for stock broking company resulting from the buying and selling transactions executed on the Stock Exchange (S.E) under which money is credited or debited.

Objectives of applying the settlement and clearing system

 1- Reducing risks associated with the accomplishment of receiving and delivering securities and financial  transactions executed on (S.E) among the intermediaries.

 2- Executing the clearing and settlement transaction at an exact period (T+4) for unregistered securities in the Central Depository System and (T+3) for registered securities in the Central Depository System and (T+2) for the active securities, where T shall mean the day on which the transaction occurs.

 3- Speed up securities turnover as a result of guaranteeing the completion of the settlement in a specified time.

 4- Attracting foreign investor through applying the international standards as Delivery Versus Payment (DVP).

 Procedures followed for the completion of clearing and settlement transaction

 Receiving securities

 After executing the transaction on S.E., the broker delivers the securities to M.C.S.D. (wherever it is stated later Shall mean the company) at most before the end of the working day (T+3) according to the transactions printout Executed on S.E.

 Reviewing securities

 · Making sure of having the client’s name on the back of the scrip or having his name on the certificate of ownership.

 · Validating stamps and signatures on the scrip.

 · Validating the security for trading.

 · Making sure of the attached coupon, currency, issue, and other incoming data on the scrip.

 Data entry phase

 Categories and serial numbers for received securities are entered on the computer.

 Reviewing and Checking

 Entered data is reviewed and matched with the previous phase.

 Settlement Phase

 Stock Broking Company feeds its cash account at one of the clearing banks where money is debited on his account and credited to the other counterpart’s account. Then, certificate of ownership is issued for the buyer.

 Delivering Securities

 The purchased securities are delivered with the attached certificate of ownership of the buyer to the concerned stock brokering company.

 A set of automated tests is to be made for verification of securities For instance: -

 Test of not the owner

 The test is to be done during settlement of the financial positions of stock broking companies, wherethe sold securities are tested and matched with MCSD data base.

 In case of any error in the selling transactions, they will be suspended from the financial settlement.

 Then, passed transactions move to another stage which is interlacements test to find out the kind of error which led to suspension of selling transaction from the financial settlement and working out to solve the problem orreturn the selling transaction to the selling stock broking company if it deems necessary.