Clearing House For Charles Schwab, Vanguard, Etrade, TD Ameritrade, IB, Merrill Edge. Self Clearing Brokerage Firms (2020)

List of self clearing online brokers. See which clearing firm is used by these brokerages: Fidelity Investments, Ally, Wellstrade, IB, Robinhood, Firstrade, M1 Finance, and TradeStation.

The Role and Function of Clearing Firms Between Brokers and Exchanges

When an investor buys or sells shares of stock from their broker, that order must first go through the clearing firm that is authorized to facilitate the sale on behalf of the stock exchange. For some smaller brokers, the cost and complexity of dealing directly with the exchange is not feasible, and an intermediary is required.

There are clearing firms that are authorized to clear trades for specific exchanges, and brokers will often work with one exclusively for each exchange for consistency and reliability. There are some brokers that also ‘self clear’ and fill the roles of both the introducing firm and the clearing firm on their own if they have the capital and resources available.

Discount Stock Brokerage Firms Clearing Houses

The Role of the Clearing Firm

The process of clearing is largely administrative and custodial. Once the order has been placed by the customer through the broker there are a number of tasks that must be completed. The processing and actual execution of the trade is primary so that the order is filled as requested. The clearing firm makes sure that the other side of the trade is taken, whether a purchase or sale, so that the trade goes through smoothly. There is also a confirmation and settlement process that is completed through the clearing firm, as well as ensuring that all exchange rules have been complied with in the trade.

The clearing firm will also maintain custody of the securities on behalf of the broker, so must have sufficient capitalization to maintain those accounts. Many investors are surprised to receive account statements or notifications directly from the clearing firm after placing a trade, or even monthly statements. Aside from capitalization and stability, most investors are not affected by which clearinghouse is used by a broker and often will not base broker selection on this factor.

Clearing Firm Capitalization and Regulatory Compliance

The largest brokers may have the resources to self-clear, or may have a subsidiary that is their clearing firm. In any case, the process is the same and under protection of SIPC, which insures investment accounts with brokers, subsidiaries and clearing firms. Despite this, at times clearing firms can run into financial difficulty as occurred with Penson Worldwide in 2012, when they had to withdraw as the clearing firm for as many as 14 brokers. This change in clearing firms drew a lot of attention to the role they play and the need for regulatory oversight of these market intermediaries. In that case, Penson became overleveraged with other types of risk that could have affected its role as a stable clearing firm.

There are clearing firms that also handle investment types other than stocks. Trades in futures contracts, currencies through Forex, options and other derivatives are all specialized trading vehicles with unique clearing requirements. A clearing firm that deals with the Forex exchange for example, would have to comply with their standards to facilitate currency trades. For this reason a broker may deal with more than one clearing firm depending on the type of investments offered to customers.