Why Is ‘Close-out Netting’ a Critical Feature of the ISDA Agreement?

Close-out netting is critical because it ensures that upon the default of one party, all transactions under the ISDA Master Agreement are immediately terminated, valued, and netted down to a single payment obligation. This prevents the non-defaulting party from being exposed to the "cherry-picking" of profitable contracts by the defaulter's administrator.

It provides certainty in a crisis and is essential for the reduction of systemic risk.