30 SECOND GUIDE: Clearing houses

Updated: 07:45 EDT, 27 September 2011

The Daily Mail City team explains this go-between needed when two parties make financial trades with each other.

Mass demolition?

No, it’s not the act of bulldozing entire residential estates.

A clearing house is a financial institution that stands between two parties during a trade and guarantees the deal if one of the parties falls through.

What deals?

A trading agreement that is a deal in either ‘future contracts’ – the agreement to buy a certain quantity of goods or services at a certain price and a certain time in the future – or any trade in bonds or shares between large institutions.

Stock exchanges: The LSE has bid to buy clearing house LCH.Clearnet

Who are they?

There are a number. LCH.Clearnet is the largest in the UK. It is the only major clearing house not to be owned by an exchange itself.

An exchange?

Such as the London Stock Exchange.

But all that is about to change, as both the LSE and financial data company Markit have made bids to buy the house.

Who owns it now?

It has 98 per cent shareholder ownership.

What happens now?

The LCH.Clearnet board met yesterday to decide which bid to accept. The decision is made more complicated as exchanges such as the Singapore exchange and the New York Stock Exchange joined the bid as minority stakeholders.