How Does the Enforceability of Netting Vary across International Jurisdictions?
The enforceability of netting, particularly close-out netting, varies significantly because it depends on the insolvency and bankruptcy laws of each jurisdiction. While major financial centers generally uphold netting agreements, some countries may have laws that allow a bankrupt entity's administrator to "cherry-pick" favorable contracts, undermining the core principle of netting.
This necessitates legal opinions on enforceability.
Glossar
Enforceability of Netting
Principle ⎊ Enforceability of netting is the legal principle confirming that in the event of a counterparty's insolvency, the mutual obligations under multiple derivatives contracts can be aggregated into a single net payment obligation.
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.