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Settlement netting: Difference between revisions
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{{isdaanat|2(c)}} | |||
Settlement netting, aka [[payment netting]], is a practical operational step that parties take to minimize daily payment flows between them by agreeing to net down opposing payment flows due in the same currency on the same day under different transactions. | |||
It is popular in [[master trading agreement|master trading arrangements]] where parties have lots out outstanding transactions with lots of payments flowing between them each day. | |||
In the context of an {{isdama}} is the ability, vouchsaved in Section {{isdaprov|2(c)}} of the {{isdama}}, to offset cashflows due between parties to the agreement on the same day in the same currency but in respect of different {{isdaprov|Transactions}}. | In the context of an {{isdama}} is the ability, vouchsaved in Section {{isdaprov|2(c)}} of the {{isdama}}, to offset cashflows due between parties to the agreement on the same day in the same currency but in respect of different {{isdaprov|Transactions}}. | ||
It isn’t really, a legal right so much as an operational convenience. If both parties do it, they do it. If one doesn't, then the other can't. It’s like clapping: you can't do it one-handed. | |||
{{ | ===[[Settlement netting]] is not the same as [[close-out netting]]=== | ||
Settlement {{tag|netting}} should not be, but routinely is, confused with the much more drastic [[close-out netting]], which is the termination of all outstanding transactions and the calculation of a single net {{isdaprov|Early Termination Amount}} under section {{isdaprov|6(e)}} of the {{isdama}}, which is something that only happens in the unhappy situation that one or other party has terminated following an {{isdaprov|Event of Default}} under Section {{isdaprov|5(a)}} or a {{isdaprov|Termination Event}} under Section {{isdaprov|5(b)}}. A {{tag|trick for young players}} there. | |||