What Is the Primary Difference between “Bilateral Netting” and “Multilateral Netting”?

Bilateral netting is an agreement between two counterparties to offset all their outstanding obligations with each other, resulting in a single net payment. Multilateral netting involves three or more parties who offset their obligations through a central entity, such as a clearing house or a Central Counterparty (CCP).

Multilateral netting is more efficient and provides greater systemic risk reduction than bilateral netting.