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.''
{{a|glossary|}}''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.''


''See - for a grossly cynical view - the [[Red Flag Act]]''
''See for a grossly cynical view the [[Red Flag Act]]''
=== Introduction ===
=== 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.  
[[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 the [[Basel Accords|Basel banking accords]] etc — one must have [[legal opinion|legal opinions]] from all relevant jurisdictions that the "[[close out netting]]" would be effective in the [[insolvency]] of the counterparty.  
In order to achieve that “net” treatment under relevant regulations — there are a lot of them; locally, regionally, and under the [[Basel Accords|Basel banking accords]] etc — one must have [[legal opinion|legal opinions]] from all relevant jurisdictions that the [[close out netting]]would be effective in the [[insolvency]] of the counterparty.  


{{set-off and netting}}
{{set-off and netting}}
{{assignment and set off}}
{{assignment and set off}}
 
{{netting between english entities}}
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}}
{{anat|isda}}
{{sa}}
*[[Automatic early termination]]
*{{Isdaprov|Close-out Amount}}
{{ref}}
{{ref}}