Definition of Clearing House
System made up of a group of banking entities with the purpose of exchanging and settling among them all types of assets and compensable documents. We could say that it is an organism that stands between two parties, and that it fulfills various functions:
There are different types of clearing houses:
– Banking Clearing House.
– Futures and Options Markets Clearing House.
Banking Clearing House. It consists of an association of which the financial entities are a part, through which they can make their payments and collections for compensation (checks, checks, bills of exchange, promissory notes, etc.) In the Clearing House, each financial entity settles with the others entities the titles and operations carried out in their favor and against them. Through this compensation, the movement of money is substantially reduced. On a daily basis, and through the Chamber, all operations carried out between financial entities are reduced to a single balance (debtor or creditor) which is settled through the accounts that these entities maintain in the Bank of Spain.
Futures and Options Markets Clearing House. Also called the Clearing House, it consists of a Company that registers, houses and guarantees the good outcome of all the contracts made in the futures and options markets.
The contracts are negotiated through a Clearing House, which allows the negotiating parties of the contract, buyer and seller, not to bind each other, but to do so with respect to the Clearing House.
The Clearinghouse acts as a buyer against the seller of the contract, and as a seller against the buyer of the contract.
Contracts are standardized (normalized). This is revealed in:
– Nominal of the contract.
– Expiration dates.
– Minimum price fluctuation.
– Guarantee deposits and daily settlement of profits and losses.
– Market hours and trading rules.
By acting as counterparty to the parties, the Clearinghouse eliminates counterparty risk. It acts as a buyer against the seller and as a seller against the buyer.
Other functions of the Camera can be:
– Daily determination of guarantee deposits for open positions.
– Daily determination of the settlement price.
– Daily settlement of profits and losses.
– Settlement of contracts on their due date.
Josep Bertrán Jordana, head of financial programs at EAE Business School, Barcelona campus
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