Definition of clearing system

A system established to settle payments among banks or, in relation to the markets, to facilitate transactions such as the transfer of ownership of securities. In the markets, the clearing process is performed by a clearing house. In the banking sector, a bank is described as a clearing bank if it is a member bank of a national cheque clearing system, which ensures that a payee receives the full value of a cheque or standing order. The clearing house interbank payment system (CHIPS) is a computerised payment system for funds transfers between US banks and the New York branches of foreign banks. The clearing house automated payment system (CHAPS) is a similar system, based in the UK, for clearing payments involving European banks.

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