Clearing Fee

A clearing fee is a charge assessed by a clearing house for completing transactions using its own facilities. It is most often associated with the trading of futures and includes all actions from the time a commitment is made to the time a transaction is settled.

Transaction fees often include both a brokerage fee and a clearing fee, but seldom include a delivery fee, since the actual delivery of the underlying asset in a future contract is rare. The actual clearing fee cost can be variable, as it is based on the type and size of the transaction.

To earn a clearing fee, a clearing house acts as a third-party to a trade. From the buyer, the clearing house receives cash, and from the seller it receives securities or futures contracts. It then manages the exchange, thereby collecting a clearing fee for doing so.

A clearing fee is a variable cost, as the total amount of the fee may depend on the size of the transaction, the level of service required or the type of instrument being traded. Investors who make several transactions in a day can generate significant fees. In the case of futures contracts, clearing fees can pile up for investors who make many trades in a single day, since long positions spread the per-contract fee out over a longer period of time.

Clearing houses act as middlemen in trades to guarantee payment in case either counterparty defaults. The technology, accounting, recordkeeping, assumed counterparty risk and liquidity are what investors and traders are paying for with their clearing fees. Clearing houses are subject to significant oversight from regulators, such as the Commodity Futures Trading Commission (CFTC). Since the great recession in 2007-2009, new regulations have resulted in far more money passing through clearing houses. As such, their failure could lead to a significant market shock. As of the end of 2017, the three major clearing houses passed liquidity stress tests by proving they could maintain enough liquidity to settle obligations in a timely fashion even if their two-largest members (banks and broker-dealers) defaulted.

The three largest clearing houses are CME Clearing (a unit of CME Group Inc.), ICE Clear U.S. (a unit of Intercontinental Exchange Inc.) and LCH Ltd. (a unit of London Stock Exchange Group Plc).

Clearing houses can trace their beginnings to around 1636; the financier of Charles I of England, Philip Burlamachi, first proposed them, along with the idea of a central bank.