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A clearing house is a financial services company that provides clearing
Clearing (finance)

In banking and finance, clearing denotes all activities from the time a commitment is made for a financial transaction until it is settled . Clearing is necessary because the speed of trades is much faster than the cycle time for completing the underlying transaction....
 and settlement
Settlement (finance)

Settlement is the process whereby security or interests in securities are delivered, usually against payment, to fulfill contractual obligations, such as those arising under securities trades....
 services for financial transactions, usually on a futures exchange
Futures exchange

A futures exchange is a central financial exchange where people can trade standardized futures contracts; that is, a contract to buy specific quantities of a commodity or financial instrument at a specified price with Delivery set at a specified time in the future....
, and often acts as central counterparty
Counterparty

A counterparty is a legal and financial term. It means a party to a contract. A counterparty is usually the entity with whom one negotiates on a given agreement, and the term can refer to either party or both, depending on context....
. A clearing house may also offer novation
Novation

Novation is a term used in contract law and business law to describe the act of either replacing an obligation to perform with a new obligation, or replacing a party to an agreement with a new party....
, the substitution of a new contract
Contract

A contract is an exchange of promises between two or more parties to do, or refrain from doing, an act which is enforceable in a court of law. It is a binding legal agreement....
 or debt
Debt

Debt is that which is owed; usually referencing assets owed, but the term can cover other obligations. In the case of assets, debt is a means of using future purchasing power in the present before a summation has been earned....
 for an old, or other credit enhancement services to its members.

The term is also used for banks like Suffolk Bank
Suffolk Bank

Suffolk Bank was a Clearing house bank in Boston, Massachusetts that exchanged money or locally backed bank notes for notes from country banks to which city-dwellers could not easily travel to redeem notes....
 that acted as a restraint on the over-issuance of private bank notes.

Clearing on futures exchanges
LCH.Clearnet (Formerly known as The London Clearing House), for example, provides clearing and settlement services for the International Petroleum Exchange
International Petroleum Exchange

The International Petroleum Exchange, based in London, is one of the world's largest energy futures exchange. Its flagship commodity, Brent Crude is a world benchmark for oil prices, but the exchange also handles futures contracts and option s on gas oil, natural gas, electricity , coal contracts and, as of 22 April, 2005, carbon emissio...
, London
London

London is the capital of both England and the United Kingdom, and the most populous municipality in the European Union. An important settlement for two millennia, History of London goes back to its founding by the Roman Empire....
, which is affiliated with the Intercontinental Exchange, Atlanta, Georgia
Atlanta, Georgia

Atlanta is the Capital and most populous city in Georgia , as well as the 33rd largest city in the United States of America with a population of 519,145....
.






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A clearing house is a financial services company that provides clearing
Clearing (finance)

In banking and finance, clearing denotes all activities from the time a commitment is made for a financial transaction until it is settled . Clearing is necessary because the speed of trades is much faster than the cycle time for completing the underlying transaction....
 and settlement
Settlement (finance)

Settlement is the process whereby security or interests in securities are delivered, usually against payment, to fulfill contractual obligations, such as those arising under securities trades....
 services for financial transactions, usually on a futures exchange
Futures exchange

A futures exchange is a central financial exchange where people can trade standardized futures contracts; that is, a contract to buy specific quantities of a commodity or financial instrument at a specified price with Delivery set at a specified time in the future....
, and often acts as central counterparty
Counterparty

A counterparty is a legal and financial term. It means a party to a contract. A counterparty is usually the entity with whom one negotiates on a given agreement, and the term can refer to either party or both, depending on context....
. A clearing house may also offer novation
Novation

Novation is a term used in contract law and business law to describe the act of either replacing an obligation to perform with a new obligation, or replacing a party to an agreement with a new party....
, the substitution of a new contract
Contract

A contract is an exchange of promises between two or more parties to do, or refrain from doing, an act which is enforceable in a court of law. It is a binding legal agreement....
 or debt
Debt

Debt is that which is owed; usually referencing assets owed, but the term can cover other obligations. In the case of assets, debt is a means of using future purchasing power in the present before a summation has been earned....
 for an old, or other credit enhancement services to its members.

The term is also used for banks like Suffolk Bank
Suffolk Bank

Suffolk Bank was a Clearing house bank in Boston, Massachusetts that exchanged money or locally backed bank notes for notes from country banks to which city-dwellers could not easily travel to redeem notes....
 that acted as a restraint on the over-issuance of private bank notes.

Clearing on options exchanges


The Options Clearing Corporation
Options Clearing Corporation

The Options Clearing Corporation , founded in 1973, is the world's largest equity derivatives Clearing_ organization, as well as a clearing firm in commodity futures, commodity options, and security futures....
 is an example of a clearing house that functions for the purpose of clearing equity options and bond derivatives, in order to ensure the proper implementation of these instruments.

Clearing on futures exchanges


LCH.Clearnet (Formerly known as The London Clearing House), for example, provides clearing and settlement services for the International Petroleum Exchange
International Petroleum Exchange

The International Petroleum Exchange, based in London, is one of the world's largest energy futures exchange. Its flagship commodity, Brent Crude is a world benchmark for oil prices, but the exchange also handles futures contracts and option s on gas oil, natural gas, electricity , coal contracts and, as of 22 April, 2005, carbon emissio...
, London
London

London is the capital of both England and the United Kingdom, and the most populous municipality in the European Union. An important settlement for two millennia, History of London goes back to its founding by the Roman Empire....
, which is affiliated with the Intercontinental Exchange, Atlanta, Georgia
Atlanta, Georgia

Atlanta is the Capital and most populous city in Georgia , as well as the 33rd largest city in the United States of America with a population of 519,145....
. The London Clearing House also acts as the clearing house for Euronext.liffe and the London Metal Exchange
London Metal Exchange

The London Metal Exchange or LME is the futures exchange with the world's largest market in option s and futures contracts on base metal and other metals....
.

In 2001, the Commodity Futures Trading Commission
Commodity Futures Trading Commission

The Commodity Futures Trading Commission is an Independent agencies of the United States government.The Commodity Exchange Act , et seq., prohibits fraudulent conduct in the trading of futures contracts....
 registered the London Clearing House as a Derivatives Clearing Organization (DCO) in the United States, making it the first offshore DCO to be recognized under the statutory mandate of the Commodity Futures Modernization Act of 2000
Commodity Futures Modernization Act of 2000

The Commodity Futures Modernization Act of 2000 or CFMA is List of United States federal legislation#106th United States Congress which repealed the Shad-Johnson jurisdictional accord, which had banned single-stock futures in 1982....
.

CME Group
CME Group

CME Group Inc. is the world?s largest futures exchange. CME Group was created July 12, 2007 from the merger between the Chicago Mercantile Exchange and the Chicago Board of Trade ....
, now a combination of the Chicago Mercantile Exchange
Chicago Mercantile Exchange

The Chicago Mercantile Exchange is an United States financial and commodity derivative exchange based in Chicago. The CME was founded in 1898 as the Chicago Butter and Egg Board....
, the Chicago Board of Trade
Chicago Board of Trade

The Chicago Board of Trade , established in 1848, is the world's oldest futures exchange. More than 50 different option s and futures contracts are traded by over 3,600 CBOT members through open outcry and eTrading....
, and the New York Mercantile Exchange
New York Mercantile Exchange

The New York Mercantile Exchange is the world's largest physical commodity futures exchange, located in New York City. Its two principal divisions are the New York Mercantile Exchange and Commodity Exchange, Inc which were once separate but are now merged....
, owns and operates its own clearing operation while also offering clearing services (for a fee) to other exchanges. Its "ClearPort" operation also provides clearing for certain "over-the-counter
Over-the-counter (finance)

'Over-the-counter' trading is to trade financial instruments such as stocks, Bond , commodity or derivative directly between two parties. It is contrasted with exchange trading, which occurs via facilities constructed for the purpose of trading , such as futures exchanges or stock exchanges....
" trades.

Clearing of payments

In the United States
United States

The United States of America is a Federal government constitutional republic comprising U.S. state and a federal district. The country is situated mostly in central North America, where its Contiguous United States and Washington, D.C., the Capital districts and territories, lie between the Pacific Ocean and Atlantic Oceans, Borders of the U...
, NACHA-The Electronic Payments Association
NACHA-The Electronic Payments Association

NACHA-The Electronic Payments Association, formerly the National Automated Clearing House Association, is an organization that develops computer file solutions to improve the Automated Clearing House payment system in the United States....
, formerly the National Automated Clearing House Association, organizes the mechanism for the financial service institutions that participate in the Automated Clearing House
Automated Clearing House

Automated Clearing House is an electronic network for financial transactions in the United States. ACH processes large volumes of both credit and debit transactions, which are originated in batches....
 (ACH) network. These organizations use the ACH to transfer funds either as debits or credits between participating institutions. Most, but not all, U.S. banks are members of the NACHA. Typical uses of ACH transactions are for automatic payroll programs, monthly mortgage or membership payments, or among non-profit organizations, as a monthly donor/contribution program.

Clearing of securities

In the United States, U.S. securities clearing is done by The Depository Trust Company or Fedwire
Fedwire

Fedwire is a Real Time Gross Settlement Funds Transfer system operated by the Federal Reserve Banks that enables financial institutions to electronically transfer funds between its more than 9,500 participants....
. International clearing is most commonly done by LCH.Clearnet.

See also

  • Clearing House Interbank Payments System
    Clearing House Interbank Payments System

    The Clearing House Interbank Payments System is the main privately held Clearing house for large-value transactions in the United States, settling well over US$1 trillion a day in around 250,000 interbank payments....
     (CHIPS)


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