Clearing house

The body that becomes buyer to every seller and seller to every buyer in a futures market, protected by margin, so no trader relies on the solvency of whoever took the other side.

Where you will meet it

Clearing house appears in 3 learning outcomes on the CFA syllabus. A few of them:

• Contrast exchange-traded derivatives with those traded over the counter
  CFA Level I · Derivatives

  “Exchange-traded derivatives are standardised in size, expiry and underlying, trade on a transparent order book and clear through a central counterparty that requires margin.”

• Explain what margin and a clearing house do
  CFA Level I · Derivatives

  “A central counterparty interposes itself between buyer and seller, becoming the buyer to every seller and the seller to every buyer, so neither party is directly exposed to the other's solvency, being exposed to the clearing house instead, which relies on margin and a default fund.”

• Explain what forwards, futures and swaps are
  CFA Level I · Derivatives

  “Futures are the exchange-traded, standardised version: a clearing house stands between the parties and positions are marked to market daily, which largely removes credit risk.”

Practise it

• Today's practice question One question, with every wrong option explained.
• Free Level I diagnostic test Twelve questions that show which topics to start with.
• Free finance calculators Check your arithmetic on the exam's core formulas.

All terms beginning with C · Glossary