Netting is the offsetting of payment obligations on derivatives contracts at a given time into a single net payable or receivable. The application of netting depends on the solvency of the counterparties. If they are solvent, payment netting applies: the cashflows owed on a given day and in a given currency are offset into a single net obligation. If one party defaults, close-out netting applies: its obligations are terminated, and the positive and negative replacement values are offset to produce a final net obligation.
NETTING
