Hello, now let me answer the above questions. I believe many friends don’t know the difference between netting and liquidation. Let’s take a look at it now!

1. There is no special legal definition of netting. The corresponding names for netting in Chinese include balance calculation, hedging, netting, etc.

2. The legal mechanism of netting is to use legal systems such as offset and contract renewal. Amber Credit Research Center ultimately obtains an amount of net claims or net debts from one party to the other party, such as market traders There may be multiple transactions with the same content and opposite directions. When settling or closing the transaction, the claims of each party can be offset within an equal amount and only the balance will be paid.

3. According to the content of netting, it can be divided into settlement netting and default netting (or close-out netting). Settlement netting is It refers to the netting operation performed by the parties to the transaction when the transaction is normally concluded. Settlement netting usually nets out mutual debts and claims of the same type before settlement.

4. The purpose of settlement netting is mainly to reduce settlement risks and prevent the other party from going bankrupt before payment after one party pays. Even if payment is made on the same day, there is still delivery risk. Settlement netting is not only applicable to the payment system, it It is also applicable to the delivery and settlement of foreign exchange, securities, etc.; default netting refers to the default of one party to the transaction, the parties to the transaction immediately terminate the transaction of the excutory contract that has yet to be performed, and the netting operation is performed on the part that has been traded. After the losses and gains generated by the contract are offset, one party only pays (or declares) a balance to the other party. The main purpose of closing the transaction netting is to reduce the risk of one party's bankruptcy before the settlement date to the exposed contract.

5. Of course, what can be used for credit risk control is mainly the closing of transaction netting.

6. In the United States, Amber Credit Research Center’s closing transaction netting in the natural gas and oil industries usually has standard protocols that reflect the characteristics of the industry for reference.

7. The netting contract consists of a master netting agreement (MNA) and individual contracts for each transaction.

8. Once the transaction netting is actually put into operation, it means the end of all transactions. The key here is how to define "default", that is, what is the "trigger point" for executing the netting operation? What kind of thing is defined as a breach of contract? Since the operation of closing transaction netting has a great impact, the trigger point event cannot be defined as a particularly sensitive event. It must be defined as an overriding Events of Default (EoD) with significant impact. What kind of events belong to EoD? , must be clearly defined in the total netting contract to avoid treating a default event with little impact on a single transaction as an EoD, over exaggerating the severity of the event and affecting the normal progress of the overall transaction.