As a way of protecting parties in the event of a trade, clearing firms are often used. A clearing firm takes responsibility for the transaction, and guarantees that it will go through in the end. Brokers use them to settle investment transactions. However, it’s important to note that some brokers are self-clearing, meaning that they have their own clearing firm while others use a third party to clear the transactions.
In many cases, the largest clearing firms handle a large number of transactions, from various broker-dealers each day.
- Apex Clearing
- Broadcort & Merrill Lynch Professional Clearing Corp.
- FOLIOfn, Inc
- Goldman Sachs Execution and Clearing LP
- J.P. Morgan Clearing Corp.
- National Financial Services LLC
- Pershing LLC
- RBC Correspondent Services
- Sterne Agee Clearing Inc.
- Southwest Securities Inc.
- Wedbush Securities Inc.
Some of the names on the list are rather well-known and familiar to most people. It’s also worth noting that the clearing houses are protected by SIPC, so it means that you, the investor, have some protection as well.
Which Brokage Firms Use Which Clearing Firms?
You don’t necessarily want to base your decision about a broker entirely on the clearing firm used. It can provide you with some insight into what to expect from that broker.
Here are some of the clearing firms used by some of the major brokers:
|Firm||Clearing House||Self Clearing?|
|Ally Invest||Apex Clearing||No|
|Charles Schwab||Charles Schwab Clearing Services||Yes|
|Clink App||Apex Clearing||No|
|E*TRADE||E*TRADE Clearing LLC||Yes|
|Fidelity Go||National Financial Services, LLC||Yes|
|Fidelity Investments||National Financial Services, LLC||Yes|
|Lightspeed Trading||Wedbush Securities||No|
|M1 Finance||Apex Clearing||No|
|Merrill Edge||Merrill Lynch||Yes|
|Merrill Edge Guided Investing (MEGI)||Merrill Lynch||Yes|
|Motif Investing||Apex Clearing||No|
|SoFi Wealth||Apex Clearing||No|
|Stash Invest||Apex Clearing||No|
|Swell Investing||Folio Institutional||No|
|TD Ameritrade||TD Ameritrade Clearing, Inc.||Yes|
|Ustocktrade||Electronic Transaction Clearing||No|
|Vanguard||Vanguard Brokerage Services||Yes|
As you can see, many of the biggest brokers are also self-clearing. Even if a brokerage firm uses a clearing company, many of them use subsidiaries that they own outright.
Many of the smaller brokers rely on third party clearing firms to help them make sure that everything proceeds as it should. It takes a certain number of resources to perform clearing services, and many of the smaller companies just don’t have those resources.
It is also important to remember that broker-dealers can change clearing firms. So, even if a broker uses one clearing firm now, the broker may switch to another clearing firm later. For the most part, though, the clearing firm isn’t a huge deal to most ordinary investors. As long as the clearing firm used is reputable, the focus should be on finding the best online broker to fit your investing needs and preferences.