Netting defines generally the process of offsetting one or a series of positive exposures against one or a series of negative exposures.
 
Netting can take place at different stages of a transaction:

• At settlement of the trade; where initial notional exchange is made net of all other transactions due.
• Replacement netting or netting by novation where a series of future payments are replaced with one or a series of new payments.
• Close-out netting or netting upon default which is the netting of positions stipulated in the ISDA master agreement in case either party falls into bankruptcy.

Party Account Netting Setup

Every account can take into account Close-out netting .
If the party has signed the ISDA Master agreement, you should activate the Netting checkbox.

Netting agreements are activated at account level rather than the party level. this is because  ISDA Master agreements usually  cover some financial products while others are not !

If Close-out netting is active, the sum of positions with positive value (receivables) can be offset against payables before any outstanding collateral is drawn  against the outstanding receivable portion.

Overall Netting Control

When your exposure type (see setting up analysis) is configured to cover Credit Risk, you essentially have four choices:

• Credit Risk
• Market And Credit Risk
• Credit Risk Net All
• Credit Risk Disable Netting

The first two exposure types:

• Credit Risk
• Market And Credit Risk

compute the exposure according to the netting policy defined in each account.
 In these two exposure types, trades of a given counterparty will be handled according to the ISDA close-out Netting agreement status in the account to which they belong.

On the other hand if you select.

• Credit Risk Net All

All trades carried out with the Party will be netted, regardless of the setting selected in the Accounts

Whereas if you choose

• Credit Risk Disable Netting

All trades carried out with the Party will NOT be netted, regardless of the setting selected in the Accounts

 

List Account Netting Status

To list accounts according to the netting agreement status, click on the  Credit button or toolbar. This will load the credit menu.

In the credit menu, select