Financial derivatives — netting

Netting is a contractual arrangement between two parties. It means that the parties have agreed that, when they transact with each other, they will not have individual cross-claims against each other. Instead, at any time there will be just one amount owed by the party whose notional cross-claim is worth less than its counterparty's cross-claim.

Netting is different from set-off and is extremely important in the context of derivatives.

This guidance note explains the use of netting in derivative transactions, including payment netting and close out netting.

See Financial derivatives — netting.