Clearinghouse

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Clearinghouse

An adjunct to a futures exchange through which transactions executed on its floor where trades are settled by a process of matching purchases and sales. A clearing organization is also charged with the proper conduct of delivery procedures and the adequate financing of the entire operation.

Clearing Corporation

An agency or corporation on an exchange that settles transactions for a fee. Most exchanges have one or more clearing corporations that are charged with matching orders together, ensuring that delivery is made to the correct party, and collecting margin money. Because so many trades take place on an exchange in a given day, clearing corporations exist to process what each party owes or is owed in a central location so that the fewest securities and the least amount of money actually change hands. For example, suppose that a broker-dealer buys 1,000 shares of a security and then, in a completely separate transaction, sells 700 of the same shares. At the end of the trading day, the clearing house would determine that the broker-dealer must only buy 300 shares as the other 700 belong to another party. Clearing corporations receive a clearing fee in exchange for these services.

Clearinghouse.

Clearing corporations, or clearinghouses, provide operational support for securities and commodities exchanges. They also help ensure the integrity of listed securities and derivatives transactions in the United States and other open markets.

For example, when an order to buy or sell a futures or options contract is executed, the clearinghouse compares the details of the trade. Then it delivers the product to the buyer and ensures that payment is made to settle the transaction.

References in periodicals archive ?
The recent stress tests examined the adequacy of clearinghouses' resources to complete clearing and settlements under a large set of stress scenarios, reflecting severe but plausible market price shocks.
Each of the regulators examined the clearinghouses' ability to withstand larger numbers of clearing member defaults and considered their ability to satisfy the Cover 2 principle, as set out in PFMI-IOSCO recommendations.
Notably, the regulators who drafted the original HIPAA Privacy Rule in 1999 anticipated the restrictive nature of the business associate status for clearinghouses. The preamble of the proposed HIPAA rule noted, "As technology improves it is likely that clearinghouses will find ways to take advantage of databases of protected health information that aggregate records based on the individual subject of the information.
Legislation would remove the BA designation from clearinghouses
Andrea Coscelli, CMA Executive Director of Markets and Mergers, and decision-maker in the phase 1 investigation, said, "ICE is the leading exchange for energy trading in the UK, and in Europe, and based on the evidence weve gathered, it may have the ability and incentive to increase prices and/or reduce the quality of Trayports software products and services on which its rivals are dependent in order to divert trading from rival exchanges, OTC brokers and clearinghouses to its own exchange and clearinghouse, and/or in order to protect its market position from increased competition.
Regulation was one of the first to criticize such thinking in an article by University of Houston finance professor Craig Pirrong ("The Clearinghouse Cure," Winter 2008-2009).
July 2010, derivatives clearinghouses will play a central role in
regulated clearinghouses; for these products, the clearinghouses will
Much recent regulatory activity has focused on enabling, enhancing, and requiring clearinghouses for these kinds of financing arrangements.
After the company needing currency-risk protection makes its euro-dollar trade with a bank, each of them turns its side of the trade over to the clearinghouse. The resulting obligations between the company and bank become obligations to and from a middleman, the clearinghouse.
In a statement LCH, Europe's largest independent clearinghouse, said it has 'received various proposals indicating an interest in pursuing some form of possible business combination or other cooperation.'
sector, there is potential for other similar clearinghouses to be

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