Harbouring doubts on close-out netting

stephen-lubben

Close-out netting is a process market participants hope never to undertake. Nevertheless, it is a mainstay of the derivatives market – and one the industry is increasingly being forced to defend against academic and congressional attack. At the end of April, an amendment to the Senate financial reform bill proposed scrapping the safe harbours for derivatives completely – a move industry participants say would be disastrous for the market.

Close-out netting means that if a derivatives user goes

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