Netting of Payments - ISDA Provision

Settlement Netting

Note this section refers only to settlement netting - the settlement of offsetting payments due on any day under the normal operation is the Agreement - and not the more drastic close-out netting - which is the Early Termination of all Transactions under Section 6 and the summing of positive and negative MTMs to arrive at a settlement amount following the occurrence of an Event of Default or an Early Termination Event.

Multiple Transaction Payment Netting

"Multiple Transaction Payment Netting" is a defined term introduced in the 2002 ISDA in place of the more clunky 1992 ISDA language set out in Section 2(c).

In the 1992 ISDA, to specify that netting across transactions would apply, you must disapply Section 2(c)(ii). Counterintuitive, but true (because otherwise netting only applies "in respect of the same Transaction").

That is partly why, in the 2002 ISDA they introduced the more intuitive Multiple Transaction Payment Netting concept. So now you can say "Multiple Transaction Payment Netting does (or does not) apply".

Good on them, eh?

In gory detail

1992 ISDA 2(c) Netting. If on any date amounts would otherwise be payable:— (i) in the same currency; and (ii) in respect of the same Transaction, by each party to the other, then, on such date, each party’s obligation to make payment of any such amount will be automatically satisfied and discharged and, if the aggregate amount that would otherwise have been payable by one party exceeds the aggregate amount that would otherwise have been payable by the other party, replaced by an obligation upon the party by whom the larger aggregate amount would have been payable to pay to the other party the excess of the larger aggregate amount over the smaller aggregate amount. The parties may elect in respect of two or more Transactions that a net amount will be determined in respect of all amounts payable on the same date in the same currency in respect of such Transactions, regardless of whether such amounts are payable in respect of the same Transaction. The election may be made in the Schedule or a Confirmation by specifying that subparagraph (ii) above will not apply to the Transactions identified as being subject to the election, together with the starting date (in which case subparagraph 2(c)(ii) above will not, or will cease to, apply to such Transactions from such date). This election may be made separately for different groups of Transactions and will apply separately to each pairing of Offices through which the parties make and receive payments or deliveries. (view template)

2002 ISDA 2(c) Netting of Payments. If on any date amounts would otherwise be payable:― (i) in the same currency; and (ii) in respect of the same Transaction, by each party to the other, then, on such date, each party’s obligation to make payment of any such amount will be automatically satisfied and discharged and, if the aggregate amount that would otherwise have been payable by one party exceeds the aggregate amount that would otherwise have been payable by the other party, replaced by an obligation upon the party by which the larger aggregate amount would have been payable to pay to the other party the excess of the larger aggregate amount over the smaller aggregate amount. The parties may elect in respect of two or more Transactions that a net amount and payment obligation will be determined in respect of all amounts payable on the same date in the same currency in respect of those Transactions, regardless of whether such amounts are payable in respect of the same Transaction. The election may be made in the Schedule or any Confirmation by specifying that “Multiple Transaction Payment Netting” applies to the Transactions identified as being subject to the election (in which case clause 2(c)(ii) above will not apply to such Transactions). If Multiple Transaction Payment Netting is applicable to Transactions, it will apply to those Transactions with effect from the starting date specified in the Schedule or such Confirmation, or, if a starting date is not specified in the Schedule or such Confirmation, the starting date otherwise agreed by the parties in writing. This election may be made separately for different groups of Transactions and will apply separately to each pairing of Offices through which the parties make and receive payments or deliveries. (view template)

Terms Referenced

• Transaction
• Confirmation
• Office
• Multiple Transaction Payment Netting

See also

• Netting
• Jurisdictional Netting Matrix