Financial derivatives—netting
Financial derivatives—netting

The following Banking & Finance guidance note provides comprehensive and up to date legal information covering:

  • Financial derivatives—netting
  • Netting
  • Why do parties net?
  • How netting differs from set-off
  • Types of netting in derivatives
  • Payment netting (also known as settlement netting)
  • Close-out netting (also known as termination netting)
  • Enforceability of close-out netting provisions

BREXIT: As of 31 January 2020, the UK is no longer an EU Member State, but has entered an implementation period during which it continues to be treated by the EU as a Member State for many purposes. As a third country, the UK can no longer participate in the EU’s political institutions, agencies, offices, bodies and governance structures (except to the limited extent agreed), but the UK must continue to adhere to its obligations under EU law (including EU treaties, legislation, principles and international agreements) and submit to the continuing jurisdiction of the Court of Justice of the European Union in accordance with the transitional arrangements in Part 4 of the Withdrawal Agreement. For further reading, see: Brexit—introduction to the Withdrawal Agreement. This has an impact on this Practice Note. For guidance, see Practice Note: Brexit—impact on finance transactions—Key issues for derivatives transactions and Brexit—impact on finance transactions—Derivatives and debt capital markets transactions—key SIs.

Netting

Netting is a contractual arrangement between two parties. Essentially, it means that the parties have agreed that, when they transact with each other, they will not have individual cross-claims against each other. Instead, at any time there will be just one amount owed by the party whose notional cross-claim is worth less than its counterparty's cross-claim.

Netting is extremely important in the context of