Clearing house
A typical contract between two financial-market participants involves one agreeing to sell and later deliver a product (say, shares) and another agreeing to pay for it...
A typical contract between two financial-market participants involves one agreeing to sell and later deliver a product (say, shares) and another agreeing to pay for it. The seller and buyer can agree terms privately (or 'over the counter').
But there are at least two problems. First, what if a big seller wants to remain anonymous so that word doesn't spread that they are trying to dump assets? And what if one party fails to honour their side of the bargain by not paying (buyer) or delivering (seller) on the agreed date?
Enter a clearing house. When share deals are arranged anonymously via, say, the London Stock Exchange, they are immediately adopted by the clearing house LCH.Clearnet. It guarantees the buyer will pay and the seller will deliver, typically three working days later, for shares.
MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE

Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Watch Tim Bennett's video tutorial: What is a clearing house?
Get the latest financial news, insights and expert analysis from our award-winning MoneyWeek team, to help you understand what really matters when it comes to your finances.
MoneyWeek is written by a team of experienced and award-winning journalists, plus expert columnists. As well as daily digital news and features, MoneyWeek also publishes a weekly magazine, covering investing and personal finance. From share tips, pensions, gold to practical investment tips - we provide a round-up to help you make money and keep it.
-
Inflation holds steady at 3.8% ahead of BoE meeting
The rate of inflation did not rise in August, but the Bank of England is still expected to keep interest rates on hold tomorrow
-
Thousands of savers with £250k pensions take cash over tax-free money and IHT fears
With a record £70 billion withdrawn from pensions in the year to March, experts are concerned savers are making knee-jerk decisions without advice that could affect their long term wealth