CHIPS (Clearing House Interbank Payments System)

CHIPS is a clearing system for large USD denominated payments taking place between banks. CHIPS is privately operated by The Clearing House, which is in turn owned by the approximately 50 financial institutions that participate in its system, and governed by Article 4A of the Uniform Commercial Code. The average transaction size is 3,000,000 USD.

There are two stages in the conclusion in a successful remittance.

1) Clearing – This is the sending of the communication by the remitting institution, and the confirmation of the receipt of the communication by the beneficiary institution, of the intention to make payment.

2) Settlement – Following clearing, this is the remittance of funds by the remitting institution, and confirmation of the receipt of funds but the beneficiary institution.

The primary difference between CHIPS and SWIFT is that the SWIFT network does not itself conduct settlement.

Interestingly, the UK has a similar system with a similar name. The Clearing House Automated Payment System (CHAPS) is a real-time gross settlement payment system used for sterling transactions. CHAPS was originally established in London by the Bankers Clearing House in February 1984, transferring to the CHAPS and Town Clearing Company Limited in December 1985.

Mr. Client wishes to send 12,000,000 USD to his realtor as part of a 1031 exchange transaction.

The funds are remitted from JP Morgan Chase and are received by Wells Fargo, with the monies cleared by CHIPS.