A clearing house is a form of financial institution, which offers settlement and clearing facilities for monetary deals normally on a futures exchange. A clearing house frequently functions in the form of a key counterparty. Clearing houses also extend services related to novation.
Novation refers to the replacement of a new agreement or loan for a previous one, as well as various facilities related to credit growth to its participants.One major instance of a clearing house is the Options Clearing Corporation, which operates with a goal to clear equity options so that to assure the appropriate usage of these devices.
LCH.Clearnet is the present name of the erstwhile London Clearing House and it offers settlement and clearing facilities for the International Petroleum Exchange, which is located in London. This exchange is associated with the Intercontinental Exchange that is located in Atlanta, Georgia.
In addition, the London Clearing House functions as the clearing house for the London Metals Exchange and Euronext.life.The London Clearing House was enlisted as a DCO or Derivatives Clearing Organization by the Commodity Futures Trading Commission in the U.S.
With the help of this registration, LCH is regarded as the earliest offshore Derivatives Clearing Organization to be approved according to the legal authorization of the Commodity Futures Modernization Act of 2000.
The Chicago Mercantile Exchange (CME) is the proprietor and operator of its internal clearing functions. At the same time, it also provides clearing facilities against a charge to several exchanges, which include the Chicago Board of Trade. According to the Chicago Mercantile Exchange’s opinion, its functions are regarded as the biggest derivatives clearing services of the world.
NACHA-The Electronic Payments Association or the erstwhile National Automated Clearing House Association is the co-ordinator of the procedures for the business enterprises that take part in the ACH (Automated Clearing House) network. These entities utilize the Automated Clearing House for channelizing funds in the form of debits and credits among participant organizations. The majority of the banks in the United States are NACHA participants. The common applications of ACH deals are meant for monthly mortgage payments, monthly membership payments, automatic payroll plans, or monthly contribution/donor plans in case of non-profit seeking corporations.
The clearing of U.S. securities in the United States is performed by Fedwire or the Depository Trust Company. Usually, LCH.Clearnet carries out the majority of international clearing operations.
Last Updated on : 1st July 2013