A clearing house is a financial services company that provides clearing and settlement services for financial transactions, usually on a futures exchange, and often acts as central counterparty (the payor actually pays the clearing house, which then pays the payee). A clearing house may also offer novation, the substitution of a new contract or debt for an old, or other credit enhancement services to its members.
The term is also used for banks like Suffolk Bank that acted as a restraint on the over-issuance of private bank notes.[1]
Clearing on options exchanges
The Options Clearing Corporation 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, London, which is affiliated with the Intercontinental Exchange, Atlanta, Georgia. The London Clearing House also acts as the clearing house for Euronext.liffe and the London Metal Exchange.
In 2001, the Commodity Futures Trading Commission 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.
CME Group, now a combination of the Chicago Mercantile Exchange, the Chicago Board of Trade, and the New York Mercantile Exchange, 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" trades.
In 2008, Intercontinental Exchange established its own Clearing House to clear ICE Europe products and migrated clearing functions from LCH.Clearnet.
Clearing of payments
In the United States, NACHA-The Electronic Payments Association, formerly the National Automated Clearing House Association, organizes the mechanism for the financial service institutions that participate in the Automated Clearing House (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. International clearing is most commonly done by LCH.Clearnet.
See also
Notes
- ^ Rolnick, Arthur J., Bruce D. Smith, and Warren E. Weber. "The Suffolk Bank and the Panic of 1837" Federal Reserve Bank of Minneapolis Quarterly Review. Vol. 24, No. 2, Spring 2000, pp. 3–13 [1]
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