What Is a Clearing Fee?
A clearing fee is a type of charge that is assessed by a clearing house when that entity performs services on behalf of a client. In terms of investments, this type of fee usually has to do with the activity of managing a trade on futures for the investor, making sure that unsettled trades are ultimately completed. It is not unusual for both the brokerage and the clearing fee to be bundled into what is known as a transaction fee, with the details of how the total is segregated between various functions allowing the investor to see what charges are related to what activities.
Unlike some other types of transaction fees, the clearing fee is usually determined based on the particulars related to the investment activity that is taking place. For example, while the brokerage fee may or may not be fixed, the clearing fee is most likely based on the type of future that is involved with the trade, the overall price of the assets involved in the trade, and even the complexity of successfully clearing the order. For this reason, most clearing brokers will advise investors in advance of how the fees are calculated, so there is no real room for surprise after the fact.
While a clearing fee can be somewhat expensive, investors usually absorb the cost by holding onto the futures contracts for a longer period of time, typically all the way to the maturity date identified in the original transaction. For investors who may choose to trade acquired futures in shorter time frames, absorbing the cost is more problematic, since there is less chance to offset the fee with the potential profits generated by the contract. Typically, this prompts investors to look closely at both the benefits and the drawbacks of selling a futures contract long before it reaches maturity.
The assessment of a clearing fee is usually managed using processes and procedures that are in line with any trading regulations that are in place in the nation where the trades occur. For example, the Commodity Futures Trading Commission in the United States sets the standards based on US trade regulations, and has the ability to file charges against any clearing broker who assesses fees that are not in line with those regulations. Other nations have similar commissions and departments that oversee the assessment of clearing fees, providing a degree of protection for investors while still allowing brokers to receive suitable compensation for their efforts. In addition, many brokerage associations will also take action against members who assess fees that are outside the scope of current laws and regulations.
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