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Close-out netting: Difference between revisions
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[[Close-out netting]] is the process of doing that under a master agreement such as the {{isdama}} when one party defaults or goes insolvent. Because an {{isdama}} may have many transactions under it, some with positive and some with negative [[mark-to-market]] exposures, the ability to agregate all these exposures down to a single net sum - known as "netting down" - is very important when calculating risk weighting. (the alternative is to treat all positive exposures as creditors claims subject to allocation in the insolvency and all negative exposures as unconditional obligations). | [[Close-out netting]] is the process of doing that under a master agreement such as the {{isdama}} when one party defaults or goes insolvent. Because an {{isdama}} may have many transactions under it, some with positive and some with negative [[mark-to-market]] exposures, the ability to agregate all these exposures down to a single net sum - known as "netting down" - is very important when calculating risk weighting. (the alternative is to treat all positive exposures as creditors claims subject to allocation in the insolvency and all negative exposures as unconditional obligations). | ||
In order to achieve that "net" treatment | In order to achieve that "net" treatment under relevant EU, Basel and {{tag|FCA}} Rules (see BIPRU {{bipruprov|13.7.6}}) stipulate that we need legal opinions from all relevant jurisdictions that the concept of "close out netting" would be effective in the insolvency of the counterparty. In most developed legal jursidictions such opinions are available, but in emerging jurisdictions it is ofen more challenging. | ||
{{biprusnap|13.7.6}} | {{biprusnap|13.7.6}} | ||