How Does Close-out Netting Differ from Payment Netting?
Payment netting is the process of aggregating all payments due on the same day between two parties into a single net amount, reducing the number of cash flows. Close-out netting is a more robust, legal mechanism that is triggered upon an Event of Default, terminating all contracts and calculating a single net payment obligation for all future and past exposures.
Glossar
Netting
Calculation ⎊ This is the mathematical process of offsetting mutual obligations between two counterparties across a portfolio of derivative contracts to determine a single net liability or asset position.
Payment Netting
Process ⎊ Payment netting is a critical financial process in derivatives trading where multiple mutual obligations between two or more counterparties are reduced to a single, net payment obligation.
Single Net Payment Obligation
Concept ⎊ Single net payment obligation refers to the legal and operational principle where multiple financial obligations between two counterparties are consolidated into a single, net amount due upon settlement or default.
Payment
Settlement ⎊ Payment within cryptocurrency, options trading, and financial derivatives represents the actual transfer of value, typically digital assets or fiat currency, to fulfill contractual obligations arising from a trade or contract execution.