A clearing house is a financial institution that acts as an intermediary between buyers and sellers in financial markets.

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Its main role is to ensure the smooth and secure transfer of funds and securities by:

1. Clearing trades – confirming and matching trade details between parties.
2. Settling transactions – ensuring the actual exchange of money and assets.
3. Managing risk – guaranteeing trades by requiring collateral (margin) and stepping in if one party defaults.

For example in the futures market the clearing house, such as the CME Clearing or Intercontinental Exchange (ICE), steps in as the counterparty to both sides of the trade. This means the clearing house becomes the buyer to every seller and the seller to every buyer. This process is known as "novation," where the clearing house replaces the original buyer and seller as the official counterparties.

Clearing houses are essential for reducing the risk of default and maintaining market stability.

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