Under the ISDA MA, which of the following terms best describes the netting applied upon the bankruptcy of a party?

Under the ISDA MA, which of the following terms best describes the netting applied upon the bankruptcy of a party?
A . Closeout netting
B . Chapter 11
C . Payment netting
D . Multilateral netting

View Answer

Answer: A

Explanation:

Netting is the ability to set just the net balances when amounts are both owed and due. Netting can takemany forms. Payment netting is netting between counterparties that owe moneys to each other in the same currency under the same transaction (or master agreement). Closeout netting is when parties settle a net amount for the value of all outstanding transactions upon the occurrence of an event of default such as bankruptcy. Multiateral netting involves a third party that sets off exposures across counterparties that owe moneys to each other.

Closeout netting under the ISDA master agreement enables a party toterminate transactions early if an Event of Default or Termination Event occurs in respect of the other party. It involves the calculation and netting of the termination values of all transactions to produce a single amount payable between the parties. Closeout netting is therefore the correct answer.