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ISDA Recognizes Close-Out Netting in Russia, OTC Derivatives Trading Becomes Less Risky

13.02.2015 12:00 / Interfax

The International Swaps and Derivatives Association (ISDA) recognizes close-out netting under Russian law for cross-border OTC derivative trading, NAUFOR reported on Friday.

“ISDA has announced that a legal opinion has been posted on their website on the possibility of close-out netting according to Russian law in termination of derivative trades documented under ISDA Master Agreement, including insolvency of the Russian party”, says NAUFOR release.

“The recognition of Russian close-out netting law by ISDA is a major breakthrough for the derivatives market. It improves credit potential for market participants and cuts their expenses and risks”, NAUFOR CEO Alexey Timofeev told Interfax.

Today, ISDA has over 800 member institutions from 67 countries. Members include a broad range of OTC derivatives market participants including corporations, investment managers, government and supranational entities, insurance companies, energy and commodities firms, and international and regional banks. In addition to market participants, members also include key components of the derivatives market infrastructure including exchanges, clearing houses and repositories, as well as law firms, accounting firms and other service providers.

Close-out netting (bilateral netting of contractual obligations in the event of insolvency) was introduced in Russia in 2011 by the Clearing Act. The mechanism enables parties to finalize settlement of derivatives and repo trades if one of the parties is insolvent, with these obligations excluded from the party’s insolvency estate.

According to the Act, in order to ensure the eligibility of a trade for close-out netting in insolvency under the Insolvency Law, it is only necessary to execute the trade under the OTC Derivatives Master Agreement, approved by the FFMS.

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