Sovereign-owned entity
One of ISDA’s vaunted netting categories.
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Netting resources
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Sovereign-Owned Entity: A legal entity wholly or majority-owned by a Sovereign, other than a Central Bank, or by a State of a Federal Sovereign, which may or may not benefit from any immunity enjoyed by the Sovereign or State of a Federal Sovereign from legal proceedings or execution against its assets. This category may include entities active entirely in the private sector without any specific public duties or public sector mission as well as statutory bodies with public duties (for example, a statutory body charged with regulatory responsibility over a sector of the domestic economy). This category does not include local governmental authorities (see “Local Authority").
Sovereign immunity and close-out netting
Does the fact that a counterparty may have, or may claim, sovereign immunity from legal proceedings before a foreign court (or its own courts, for that matter) invalidate a close-out netting clause?
We think not: the close-out mechanism does not require the intervention of any court to work: it is a self-help remedy. You terminate, net off and walk away.[1] To the contrary, it would only come before a court were the Defaulting Party to apply to the court to challenge its exercise. And you can’t have it both ways: a sovereign immunity right only avails you if you stay away from court. The moment Queenie puts the matter before a court she submits to the court and, Q.E.D., waives her immunity. Sorry, Your Majesty: I don’t make the rules.