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lowered credit risk because the parties could take advantage of
offsetting transactions in the event of counterparty default.
For purpose of determining the closeout netting price, the
1992 ISDA form agreement allowed two methods of ascertaining the
closeout netting settlement amount. The first method was the
“Market Quotation” method. The second method was the “Loss”
method. Neither method provided specifically that the settlement
amount should take into account the credit risk of the
counterparty or administrative costs.
b. Single Transaction Netting
The ISDA form agreements provided that payments in the same
currency and with respect to the same swap were automatically
netted. This type of netting is known as single transaction
netting.
c. Multiple Transaction Netting
The ISDA form agreements provided that the parties could in
certain circumstances elect a net amount that would be payable
for two or more transactions. This type of netting is known as
multiple transaction netting. Multiple transaction netting
applied where the payments on more than one swap with the same
counterparty were due on the same day and in the same currency.
2. Netting in the Industry
During the relevant years, netting was commonly available to
estimate current exposure, and market participants placed
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