What Is the Difference between Payment Netting and Close-out Netting?
Payment netting is the process of reducing multiple payment obligations between two parties due on the same day to a single net payment. Close-out netting is a more comprehensive process that occurs upon the default of a counterparty, where all outstanding contracts are terminated and valued, resulting in a single, net payment or obligation to be settled.
Glossar
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.
Payment Obligations
Obligation ⎊ Payment obligations represent the contractual requirement for a party to transfer funds to another party, typically arising from the settlement of a financial derivative or options contract.
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.