Clearing house
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A clearing house is an entity through which transactions are cleared and settled. For financial exchanges, a clearing house is responsible for collecting and maintaining margin funds/performance bonds, reporting trading data and regulating delivery. In sum, it serves an essential function of being the buyer to every seller and the seller to every buyer, thus virtually negating counterparty risk.
In the exchange arena, some exchanges have their own internal clearing operations, while others contract with independent clearing organizations to handle clearing functions. In the U.S., all security options business is cleared by The Options Clearing Corporation, which operates as a utility owned by five of the seven U.S. options exchanges, but with a Board of Directors majority held by member firms.
In February 2008, the Department of Justice called for a review of clearing services – including their ownership by exchanges.[1]. The largest exchange impacted by this review would be CME Group, which derives a substantial portion of its revenue from its clearing business.[2] In 2003, prior to the 2007 merger of CME and the Chicago Board of Trade (CBOT), the CBOT had moved its clearing business from the third-party Board of Trade Clearing Corp. (now The Clearing Corporation) to CME Clearing. Additionally, if a deal is sealed between NYMEX and CME Group, which announced at the end of January 2008 that they were pursuing a 30-day period in which to pursue a merger, clearing would present a big revenue number.
References
- ↑ DoJ Challenges Ownership of Clearinghouses. Financial Times. Retrieved on February 6, 2008.
- ↑ "CME Group Statement,” Feb. 6, 2008. CME Group. Retrieved on February 6, 2008.
