clearinghouse

noun

clear·ing·house | \ ˈklir-iŋ-ˌhau̇s

Definition of clearinghouse

1 : an establishment maintained by banks for settling mutual claims and accounts

2 : a central agency for the collection, classification, and distribution especially of information broadly : an informal channel for distributing information or assistance

Examples of clearinghouse in a Sentence

an online clearinghouse for information on museums around the world

Recent Examples on the Web

In past years, employers generally led the effort and encouraged people to give to the United Way as a local clearinghouse for donations. — Deborah Yetter, The Courier-Journal, "Louisville nonprofits dealt another blow after United Way announces it will slash funds," 11 June 2019 One clearinghouse alone—the London Stock Exchange ’s LCH.Clearnet—cleared transactions with a nominal value of around $900 trillion last year. — Tom Fairless, WSJ, "The Next EU-U.S. Battleground: Clearinghouses," 1 June 2018 But actually the organization is more of an information clearinghouse. — Daniel Michaels, WSJ, "Interpol in Spotlight After Chinese Arrest," 8 Oct. 2018 The group predicts donations will top $1.5 billion by year’s end, double the amount the fundraising clearinghouse processed in the 2016 election cycle. — Fox News Staff, Fox News, "All eyes on Ohio's special election," 6 Aug. 2018 The role of Options Clearing as a clearinghouse is to keep enough collateral on hand to protect trader defaults from rippling through markets and causing widespread losses. — Gunjan Banerji, WSJ, "Regulators Probe Options Market’s Major Clearinghouse," 2 Aug. 2018 The move shows a lessening of tensions in a standoff between the U.S. and EU over clearinghouse supervision. — Gabriel T. Rubin, WSJ, "U.S. to Allow Swap Trades at German Clearinghouse Amid Brexit Fears," 20 Dec. 2018 Interpol acts as a clearinghouse for national police services that want to hunt down suspects outside their borders. — Aya Batrawy, The Seattle Times, "Kosovo’s bid to join Interpol fails, in victory for Serbia," 20 Nov. 2018 The State Department, normally the clearinghouse for diplomatic endeavors, was silent. — Tracy Wilkinson, latimes.com, "White House team visits Mideast to advance its still-secret Israeli-Palestinian peace plan," 23 June 2018

These example sentences are selected automatically from various online news sources to reflect current usage of the word 'clearinghouse.' Views expressed in the examples do not represent the opinion of Merriam-Webster or its editors. Send us feedback.

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Last Updated

10 Jul 2019

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The first known use of clearinghouse was in 1792

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More Definitions for clearinghouse

clearinghouse

noun

Financial Definition of clearinghouse

What It Is

A clearinghouse is an intermediary between buyers and sellers of financial instruments.

How It Works

Clearinghouses take the opposite position of each side of a trade. When two parties agree on the terms of a transaction, a clearinghouse sits in the middle, acting as both the buyer and the seller. Clearinghouses exist to ensure the smooth functioning of financial markets. Fewer transactions would take place if sellers were worried that buyers would refuse to pay them, and vice versa. A clearinghouse ensures that transactions happen as planned.

For example, if you agree to sell your 100 shares of Company XYZ to John for $10,000, the clearinghouse ensures that John is delivered the 100 shares and you are delivered $10,000. It also records and reports the transaction to everyone involved. Either way, the clearinghouse is responsible for ensuring that the transaction happens in an accurate and timely manner.

Clearinghouses operate in most areas of the business world. For example, in the futures markets, clearinghouses ensure that the buyers and sellers fulfill their obligations related to the futures contract being traded and oversee the proper delivery of the underlying instrument. A country's central bank (e.g. the Federal Reserve in the U.S.) acts as a clearinghouse for checks, interbank payments, foreign exchange transactions, and other fund transfers in the banking system.

Why It Matters

Clearinghouses, acting as middlemen between buyers and sellers, provide both efficiency and stability to the financial markets they serve. However, they take on a high amount of risk because they act as both buyer and seller for a brief moment in almost every transaction. If a buyer fails to pay for the securities he has purchased, the clearinghouse must seek recovery of the funds or wait for them to become available.

Because the clearinghouse is on the hook if either party defaults on their agreement, they generally will not process transactions for traders who take on too much risk. To mitigate risk, clearinghouses also often require traders to deposit additional funds into their brokerage accounts in order to maintain minimum "margin requirements." These funds ensure that the clearinghouse will have access to enough funds to offset losses incurred by traders to get in over their heads and fail to meet their financial obligations.

Source: Investing Answers

clearinghouse

noun