Close-out netting
FRM Part 2 glossary · Credit Risk
Definition
A legally enforceable process that reduces a defaulted counterparty’s multiple transactions to one net payable or receivable.
Close-out netting in plain English
Netting can sharply reduce replacement-cost exposure, but only when legal opinions support enforceability across the relevant products and jurisdictions. It does not remove gap risk during the margin period of risk.
Practice Close-out netting
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