What is a clearing house?

A clearing house calculates what each participant owes and makes sure the obligations are met. The definition of clearing in EMIR, the EU law for this part of finance, reads "the process of establishing positions, including the calculation of net obligations, and ensuring that financial instruments, cash, or both, are available to secure the exposures arising from those positions". That is the meaning of clearing house in the derivatives and securities markets.

A CCP goes one step further. EMIR defines it as "a legal person that interposes itself between the counterparties to the contracts traded on one or more financial markets, becoming the buyer to every seller and the seller to every buyer". For example, a bank sells a Bund future on an exchange, and an asset manager buys it. After clearing, the bank has a contract with the CCP, and so does the asset manager. If the bank fails, the asset manager's contract with the CCP stands.

A clearing house in banking is the place where banks present and exchange payment orders and calculate their mutual positions before settlement. The ECB describes a clearing system as a set of rules under which financial institutions exchange data on transfers of funds or securities "at a single location (e.g. a clearing house)". The clearing house often nets the positions, and the net amounts then settle in a settlement system. Clearing vs settlement: how do they differ? sets out the difference between the two steps, explained in a table.

A clearing firm is called a clearing member in EMIR: "an undertaking which participates in a CCP and which is responsible for discharging the financial obligations arising from that participation". A company that must clear a derivative becomes a clearing member, a client of a clearing member, or uses indirect clearing (Article 4(3) EMIR).

A CCP covers a default with collateral and funds that it collects in advance. Margins must cover losses from at least 99% of the exposure movements over an appropriate time horizon (Article 41 EMIR). Each clearing member also pays into a default fund (Article 42). Article 45 sets the order in which a CCP uses these resources, called the default waterfall:

1. The margins of the defaulting clearing member.
2. The default fund contribution of the defaulting clearing member.
3. Dedicated own resources of the CCP.
4. The default fund contributions of the other clearing members.

A CCP may not use the margins of clearing members that did not default.

The European Market Infrastructure Regulation, EMIR, requires central clearing for the classes of OTC derivatives that are declared subject to the clearing obligation, and it sets the rules for CCPs. Under Article 4, counterparties clear all OTC derivative contracts of such a class. A CCP established in the EU applies for authorization to the competent authority of its member state (Article 14). Each member state names that authority (Article 22).

EMIR 3 is Regulation (EU) 2024/2987 of November 27, 2024. Its new Article 7a is the active account requirement. Financial and non-financial counterparties that are subject to the clearing obligation and exceed the clearing threshold in the categories of derivatives listed there hold at least one active account at a CCP authorized in the EU. They clear at least a representative number of trades in that account.

A CCP stands between the two sides of a trade until it settles, and a CSD settles the trade by moving the securities. The difference between a CCP and a CSD follows from the two EU definitions.

In Germany and Austria, EMIR applies directly. Eurex Clearing AG in Germany is licensed as a credit institution under BaFin supervision and received its authorization as a CCP under EMIR on April 10, 2014. It serves about 200 clearing members in 22 countries (Eurex Clearing) and clears trades valued at more than EUR 11 trillion every month (Eurex). Its registered office is in Frankfurt am Main, where it is entered in the commercial register under HRB 44828, and its offices are in neighboring Eschborn (Eurex Clearing imprint). In Austria, CCP Austria clears the securities trades of the Vienna Stock Exchange and electricity trades on EXAA (CCP Austria). The FMA is the Austrian supervisor.

Switzerland is outside the EU, so EMIR does not apply there. The Financial Market Infrastructure Act (FinMIA) governs central counterparties in its Article 48, and FINMA supervises them. SIX x-clear AG is a licensed Swiss CCP, and it is also recognized as a third-country CCP in the EU and the UK (SIX, Clearing). FINMA recognized Eurex Clearing as a foreign central counterparty on March 29, 2018. This page gives no legal advice.