Close-out netting: Difference between revisions
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''Be careful to distinguish between '''[[Settlement netting]]''' (also known as '''[[Payment netting]]''') - which is an operational convenience gladly applied during the life of a derivatives trading relationship, and [[Close-out netting]] which is applied, with a heavy heart, by a non-defaulting party under Section {{isdaprov|6}} of the {{isdama}} when things have turned to custard.'' | ''Be careful to distinguish between '''[[Settlement netting]]''' (also known as '''[[Payment netting]]''') - which is an operational convenience gladly applied during the life of a derivatives trading relationship, and [[Close-out netting]] which is applied, with a heavy heart, by a non-defaulting party under Section {{isdaprov|6}} of the {{isdama}} when things have turned to custard.'' | ||
=== Introduction === | |||
[[Close-out netting]] is the process of doing that under a [[master agreement]] such as the {{isdama}} when one party defaults. Because an {{isdama}} may have many {{isdaprov|Transaction}}s under it, some with positive and some with negative [[mark-to-market]] exposures, the ability to “net down” all these exposures to a single net sum is important when calculating risk weighting. | |||
In order to achieve that "net" treatment under relevant regulations — there are a lot of them; locally, regionally, and under Basel etc) one must have legal opinions from all relevant jurisdictions that the "close out netting" would be effective in the insolvency of the counterparty. | |||
{{set-off and netting}} | |||
{{assignment and set off}} | |||
For a discussion of what "closing out" is and how it works in various types of Master Agreement, see: | For a discussion of what "closing out" is and how it works in various types of Master Agreement, see: | ||
*{{isdaprov|Early Termination}} under the {{isdama}} | *{{isdaprov|Early Termination}} under the {{isdama}} | ||
*[[GMSLA Netting]] under the {{gmsla}} | *[[GMSLA Netting]] under the {{gmsla}} | ||
{{isdaanatomy}} | {{isdaanatomy}} |