Clearing Corporation

Also known as a clearing house or clearing house association. A central processing mechanism whereby members agree to net, clear, and settle transactions involving financial instruments. Clearing corporations fulfill one or all of the following functions: Net many trades so that the number and the amount of payments that have to be made are minimized, determine money obligations among traders, and guarantee that trades will go through by legally assuming the risk of payments not made or securities not delivered. The latter function is implied when it is stated that the clearing corporation becomes the "counterpart" to all trades entered into its system.