Financial transactions in the digital age are increasingly diverse, necessitating a ‘party’ to bridge the gap and ensure the security of these transactions. One such intermediary is the clearing house. A clearing house acts as a ‘mediator’ to ensure the security and smoothness of transactions across various financial markets, such as stocks, futures, and crypto assets. This article delves deeper into how clearing houses operate.


Clearing houses involve various processes depending on the type of transaction. Here is a general overview of how clearing houses work:

1. Transaction Confirmation

After a transaction is made in the financial markets, such as stock exchanges or derivatives markets, the clearing house receives transaction details, including information about the traded assets, price, and the identities of the buyer and seller.

2. Risk Assessment

Clearing houses have the authority to assess the risks associated with transactions conducted in the derivatives market.

3. Providing Collateral

Clearing houses can check and ensure that both parties involved in the transaction have sufficient funds or assets as collateral to execute the transaction. This collateral is held by the clearing house until the transaction is completed.

4. Transaction Settlement

Clearing houses can facilitate the exchange of funds and assets between the buyer and seller. This ensures that the seller receives payment and the buyer receives the asset or security they purchased.

5. Handling Discrepancies

If discrepancies occur, the clearing house acts as a mediator to resolve the issue between the buyer and seller.

6. Reconciliation and Reporting

After the transaction is completed, the clearing house performs reconciliation to ensure all funds and assets have been exchanged correctly, then provides reports to relevant parties about the transaction details.

Through these processes, clearing houses play a crucial role in enhancing the security, efficiency, and transparency of financial markets, which can reduce counterparty risk (the risk of the other party failing to meet its obligations) and help maintain the overall stability of the financial system.

Clearing Houses in the Crypto Industry


In crypto transactions, clearing houses have four roles, including:

  1. Setting and managing broker account requirements
  2. Approving trade settlements from exchanges and brokers
  3. Ensuring the transfer of fiat currency assets between exchanges and brokers
  4. Gathering liquidity from exchanges and users.

In addition to clearing houses, other parties involved in transactions include:

Decentralized Exchange (DEX) & Centralized Exchange (CEX)

Centralized (CEX) and Decentralized Exchanges (DEX) are platforms that provide brokerage/exchange services, have rights over users’ assets, and act as clearing entities for trades executed on their platforms. However, some exchanges collaborate with other institutions to provide additional tokens and liquidity.

Market Makers

Market Makers or Liquidity Providers supply liquidity to Brokers by locking assets. They are compensated by receiving a portion of the trading fees generated by the broker based on the size of the assets they transact. In crypto, any token holder can become a market maker, and market makers are usually unregulated individuals and entities.


Custodians are institutions that hold customer assets in the form of crypto assets, unlike clearing houses that hold assets in fiat currency. Custodians may also include Know Your Customer (KYC) and reporting.


From a regulatory standpoint, clearing houses enable market participants to be well-regulated, which significantly enhances the credibility of the market and the value of the ecosystem. Most importantly, they provide comprehensive protection for users or investors. Given the relatively new nature of the crypto industry, which comes with many challenges, the presence of regulated clearing houses can be one of the solutions.