What is "clearing house"

Clearing \Clear"ing\, n.

1. The act or process of making clear.

   The better clearing of this point.
   --South.

2. A tract of land cleared of wood for cultivation.

   A lonely clearing on the shores of Moxie Lake.
   --J. Burroughs.

3. A method adopted by banks and bankers for making an exchange of checks held by each against the others, and settling differences of accounts.

   Note: In England, a similar method has been adopted by railroads for adjusting their accounts with each other.

4. The gross amount of the balances adjusted in the clearing house.

   Clearing house, the establishment where the business of clearing is carried on. See above, 3.

n. 1 A central point where clearing banks exchange checks etc and settle accounts 2 (context figuratively by extension English) A hub of goods traffic 3 (context GIS English) A repository structure, physical or virtual, that collects, stores, and disseminates information, metadata, and data

n. a central collection place where banks exchange checks or drafts; participants maintain an account against which credits or debits are posted

A clearing house is a financial institution that provides clearing and settlement services for financial and commodities derivatives and securities transactions. These transactions may be executed on a futures exchange or securities exchange, as well as off-exchange in the over-the-counter (OTC) market. A clearing house stands between two clearing firms (also known as member firms or clearing participants) and its purpose is to reduce the risk of one (or more) clearing firm failing to honor its trade settlement obligations. A clearing house reduces the settlement risks by netting offsetting transactions between multiple counterparties, by requiring collateral deposits (also called " margin deposits"), by providing independent valuation of trades and collateral, by monitoring the credit worthiness of the clearing firms, and in many cases, by providing a guarantee fund that can be used to cover losses that exceed a defaulting clearing firm's collateral on deposit. Also, it acts as a clearing firm.

Once a trade has been executed by two counterparties either on an exchange, or in the OTC markets, the trade can be handed over to a clearing house, which then steps between the two original traders' clearing firms and assumes the legal counterparty risk for the trade. This process of transferring the trade title to the clearing house is called novation. It can take fractions of seconds in highly liquid futures markets; or days, or even weeks in some OTC markets.

As the clearing house concentrates the risk of settlement failures into itself and is able to isolate the effects of a failure of a market participant, it also needs to be properly managed and well-capitalized in order to ensure its survival in the event of a significant adverse event, such as a large clearing firm defaulting or a market crash.

Many clearing house guarantee funds are capitalized with collateral from its clearing firms. In the event of a settlement failure, the clearing firm may be declared to be in default and clearing house default procedures may be utilized, which may include the orderly liquidation of the defaulting firm's positions and collateral. In the event of a significant clearing firm failure, the clearing house may draw on its guarantee fund in order to settle trades on behalf of the failed clearing firm.

The term is also used for banks like Suffolk Bank that acted as a restraint on the over-issuance of private bank notes.

Clearing house or Clearinghouse may refer to:

• Clearing (finance)
• Bankers' clearing house
• Clearing house (finance)
• The Clearing House Payments Company
• Clearing House Association
• Automated Clearing House
• New York Clearing House
• Clearing House, California
• Packet Clearing House
• Pan-European Automated Clearing House
• Clearing House (EU), an EU intelligence body
• Access to Information Central Clearing House (UK)
• Central Register and Clearing House
• Euroclear
• Clearstream
• Clearing House Automated Transfer System (HK)
• Education Facilities Clearinghouse, a program of the US Department of Education
• Railway Clearing House
• A computer reservations system for an airline
• Publishers Clearing House
• Biosafety Clearing-House
• Fire Safe California Grants Clearinghouse
• National Student Clearinghouse, a nonprofit organization serving the education community

Clearing House is a working group in the European Union established after the September 11, 2001 attacks. It is composed of national security services under the Common Foreign and Security Policy who meet regularly in Brussels on counter-terrorism matters.

Its primary roles are to agree which groups go on the EU's black list of terrorist groups and have their financial assets in the EU frozen. It does not appear on official lists and is not open to public scrutiny. All advice given by the group is not accompanied by evidence or reasoning and when put before leaders it is adopted as an "A point" (agenda item without discussion).

There are some allegations that the group is open to political manipulation with calls for greater scrutiny, however this is resisted for security reasons.