Clearing house

Clearing House (or clearing house , clearinghouse ) is a company that because of a contract with the clearing members by way of set-off ( offsetting ) the balance mutual claims and liabilities by clearing performs.

General

The word 'Clearing "is the gerund " clean, clear "for ( English to clear ). The compound "Clearing House" first appeared in connection with the London clearing houses ( English clearing houses ) on. These were banks that only regulated the excess balances from cashed checks and bills of exchange through accounting systems . They rented a building on Lombard Street in 1770 , and the Bankers' Clearing House was not established as an organization until 1775, and by 1810 already had 46 members. The clearing trade reached a greater extent through the accession of the great public banks in 1854 and the Bank of England (1864); the transactions effected appeared in a clearing Book ( English clearing book ). The first US clearing house was established at the same time as the New York Clearing House Association in 1854 , followed by one in Boston in 1856. Karl Marx , who lived in London, was also familiar with the clearing house: "The mere economization of the means of circulation appears to be most developed in the clearing house, the mere exchange of due bills and the predominant function of money as a means of payment to offset mere surpluses".

tasks

Henner Schierenbeck sees the terms clearing house and clearing house as synonyms, but the clearing house is usually associated with functions outside of finance . The task of the clearing house is to centrally process the payment or securities transactions of the affiliated institutes or members. For this purpose, a contract regulates the clearing conditions, according to which the clearing members must, among other things, maintain an account connection with the clearing house through which the transactions to be settled are processed.

Payment transactions, for example, the clearing house forwards a payment from the Institute of the payer to the Institute of the payee on. In securities transactions, one member notifies the clearing house of a securities purchase, while another member has made the corresponding sale; both corresponding securities orders are the clearing house by compensating ( English trade matching merged). It creates by the securities -abrechnungsmechanismus "delivery versus payment" ( English delivery against payment ) the precondition for the transfer of securities is linked to such a transfer of money that the delivery of securities only can be done when the corresponding transfer of money takes place and vice versa. The opposite position is taken for each contract ; in the case of futures and options , the contracts are guaranteed by the clearing house entering into a contract as the counterparty .

species

The top institutions of the savings banks ( giro centers ) and credit unions (cooperative central banks) and head offices of the branch banks have the functions of a clearing house . The German Bundesbank acts with their real-time gross settlement system (RTGS) system TARGET2 within the ESCB as a clearinghouse. Since clearing and fulfillment in an RTGS system take place immediately, final and irrevocable, the market participants have full security about the book monies received . To make this performance risk ( English settlement risk ) - from the failure or delay in the processing could result - eliminated.

The introduction of RTGS systems worldwide is mainly being pushed by the central banks , which thereby ensure the stability of the financial system . Failure in settlement is a systemic risk that can trigger widespread liquidity or credit problems and thus endanger the stability of the financial system or even the entire economy. Disruptions in the securities or derivatives trading sector can also trigger systemic risks. That is why central counterparties , central securities depositories or central securities depositories (EU) also perform the tasks of a clearing house .

Fedwire is the RTGS system of the Federal Reserve Bank , the central bank of the United States , for processing payments in US dollars . The Continuous Linked Settlement (CLS-Bank) handles the clearing for foreign exchange , the The Clearing Corporation (TCC) offers clearing for futures and options contracts.

As a result of the financial crisis from 2007 onwards, increasing efforts became apparent to set up clearing houses for various types of financial products . In particular, the establishment of clearing houses for credit default swaps (CDS) became the focus of political and regulatory discussions with the aim of hedging the risks of these products in the future. The Intercontinental Exchange has been the world's first clearing house to offer CDS clearing since March 2009. In July 2009, Deutsche Börse also started a corresponding clearing offer. In December 2009, the start of a CDS clearing offer from the CME Group was announced. In June 2014, the clearinghouse received European Commodity Clearing by BaFin , the approval as a central counterparty for the market infrastructure regulation .

Banking regulatory treatment

The Capital Adequacy Ordinance (CRR) deals with the counterparty default risk (the risk of the counterparty of a transaction defaulting before the final settlement of the payments associated with this transaction), primarily because of the clearing houses. According to Art. 201 Para. 1 lit. h) CRR, credit institutions are allowed to use a central counterparty (English abbreviation CCP) as security without a security deposit ( guarantor , surety ). According to Art. 2 No. 1 Regulation (EU) No. 648/2012, a central counterparty is “a legal person who acts between the counterparties of the contracts traded on one or more markets and thus as a buyer for each seller or as a seller for every buyer acts. ”A clearing member participates in a CCP in accordance with Art. 2 No. 14 of this Ordinance and is liable for the fulfillment of the financial obligations arising from this participation. Central securities depositories are credit institutions in accordance with Section 2 (9e) KWG . Regulation (EU) No. 909/2014 (Central Securities Depository Ordinance) applies to them . It aims to ensure that central securities depositories and central counterparties make a major contribution to maintaining trading infrastructures that secure the financial markets and allow market participants to trust that securities transactions will be carried out properly and on time - even in times of extreme stress.

According to Regulation (EU) No. 648/2012, clearing via a central counterparty serves specifically to eliminate the risk of counterparty default. According to Art. 1 No. of this ordinance, the clearing member is “a company that participates in a central counterparty and is liable for the fulfillment of the financial obligations resulting from this participation”. According to Art. 2 No. 1, the central counterparty is a legal person who acts between the counterparties of the contracts traded on one or more markets and thus acts as a buyer for each seller or as a seller for each buyer. Clearing via a central counterparty is specifically designed to eliminate counterparty default risk and may therefore not be the best solution for dealing with settlement risk.

In March 2015, the ECJ ruled that clearing houses do not necessarily have to be based in the euro area in order to process securities in euros . The ECB does not have the necessary authority to regulate the operation of securities clearing systems including CCPs and is therefore not allowed to prescribe the settlement of securities transactions in euros only in the euro area.

economic aspects

Credit institutions no longer have to deal with the counterparty default risk of a large number of financial services institutions , credit institutions or investment firms , but only with the counterparty default risk of a few clearing houses. Their risk of default is either very low (some central banks are incapable of insolvency such as the Deutsche Bundesbank; or clearing houses with pure payment processing such as the CLS-Bank) or standard banking (such as TCC). This reduces the risk of counterparty default , which increases the security of the transactions and the market participants who carry them out. If a clearing member defaults due to insolvency , this can have a domino effect among market participants and ultimately endanger the stability of the financial market .