Netting risks create pricing and operational headaches
Oversight of legal risks is not always robust
Akber Datoo is partner and Peter Sime is senior adviser at D2 Legal Technology in London
Close-out netting is the single biggest risk mitigant for counterparty credit risk arising from over-the-counter derivatives and stock financing transactions such as repos.
Netting has been critical to the growth of the OTC derivatives and other capital markets, primarily because it allows banks to calculate regulatory capital and the various pricing adjustments from a smaller net figure, rather than an
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