What is a clearing house

A clearing house refers to a financial institution that offers clearing and settlement facilities to financial and commodities derivatives and securities transactions. A clearing house facilitates the relationship between two clearing firms and ensures that they fulfill their contracts.

Clearing house explained

A clearing house operates an electronic network that enables financial transactions in the United States. These transactions are able to be executed on a futures exchange, securities exchange or in an over-the-counter market.

The main purpose of the clearing house is to minimize the amount of risk involved in settlements by netting offsetting financial transactions regarding various parties involved. This is done by collateral deposits required by the clearing house facility in order to offer independent valuation of trades and collateral. Through this, the clearing house is able to monitor the credibility of clearing firms thus offering guarantee funds that are able to cover losses made by a clearing firm’s collateral on deposit. Therefore, a clearing house acts as a third party in terms of all futures and options contracts clearing firms execute.

Automated Clearing House (ACH) is a process that facilitates online financial transaction made through credit or debit cards. ACH is a US electronic network that processes large volumes of simultaneous online transactions made by credit and debit cards.

Banks that specialize in cash management services offer a wide range of cash services, including clearing house facilities in order to facilitate the transfer of money between different banks. This service is a specialist service as it involves large sums of funds to be managed and transferred. In order to register and establish a bank to offers these services, it is advised to seek the guidance from a professional consultancy firm to ensure that you complete the process in a professional and timely manner.