For those of my readers not familiar with the lingo of the financial world, let me begin with a definition of clearing and then of a clearinghouse. Clearing is the process by which transactions are reconciled, that is, money matched to the product or service it is purchasing. An institution that "clears" a transaction is also the institution that, in the first instance, runs the risk of default. Simple example: I make some large purchase with a check. The seller accepts my check in payment. In that case, in a common arrangement my bank would be the clearing party, and would bear that initial risk of default. It is the bank, not the seller, and not in the first instance me either, who will be "out" if my check is in excess of my deposit account. In finance, then, a clearinghouse (sometimes written in two words as 'clearing house') is an institution that provides clearing and settlement services for commodities, derivatives, or securities transact...
