Clearing houses were first proposed in 1636 by
Philip Burlamachi, financier to
Charles I of England.
Bank clearance The origins of clearing houses date back to bank cheque clearing in the 18th century. The London Clearing-House was established between 1750 and 1770 as a place where the clerks of the bankers of the city of London could assemble daily to exchange with one another the cheques drawn upon and bills payable at their respective houses. It replaced a system of clerks visiting every other banker in London.
Financial exchanges Financial exchanges, such as commodities futures markets and
stock exchanges, began to use clearing houses in the latter part of the 19th century. In 1874 the
London Stock Exchange Clearing-House was established for the purpose of settling transactions in
stock, the clearing being effected by
balance sheets and tickets. The balance of stock to be received or delivered was shown on a balance sheet sent in by each member, and the items are then cancelled against one another and tickets issued for the balances outstanding. As late as 1899, the London Stock Exchange was still the only
stock exchange in Europe using a clearing house. The
Philadelphia Stock Exchange (founded 1790), the first U.S. stock exchange to use a clearing system, began using a clearing system in 1870, but the much larger
New York Stock Exchange (NYSE) still had no clearing system some two decades later in 1891. The
Consolidated Stock Exchange of New York used clearing houses from its inception in 1885. This exchange existed in competition with the NYSE from 1885 to 1926 and averaged 23% of NYSE volume. Its competitor Consolidated's use of clearing houses finally forced the NYSE to follow suit (from 1892) to gain the same market advantages of at least prevention of frauds and reneging on bargains. Some major U.S.
commodities exchanges, like the New York Coffee Exchange (today the
Coffee, Sugar and Cocoa Exchange) and the
Chicago Mercantile Exchange did not begin using clearing houses to settle their transactions until the second decade of the 20th century (1914 and 1919, respectively).
Other industries The British
Railway Clearing House was established in 1842. Its purpose, as defined by the
Railway Clearing Act 1850, was "to settle and adjust the receipts arising from railway traffic within, or partly within, the United Kingdom, and passing over more than one railway within the United Kingdom, booked or invoiced at throughout rates or fares." The Irish Railway Clearing-House, established in 1848, had its headquarters in Dublin, and was incorporated by act of Parliament, the
Clearing Act (Ireland) 1860 (
23 & 24 Vict. c. xxix). In 1888 a society was formed in London called the Beetroot Sugar Association for clearing bargains in sugar from
sugar beet, and the London Produce Clearing-House was established in the same year for regulating and adjusting bargains in foreign and colonial produce.
Central counterparty clearing Modern central counterparty clearing (CCP) provides
clearing services, and also takes on the
counterparty risk of the counterparties (member banks and broker-dealers). == Impact ==