Multilateral Netting

AAA

DEFINITION of 'Multilateral Netting'

An arrangement among multiple parties that transactions be summed, rather than settled individually. Multilateral netting not only streamlines the settlement process, it also reduces risk by specifying that, in the event of a default or some other termination event, all outstanding contracts are likewise terminated. Generally speaking, multilateral netting is enabled via a membership organization like an exchange.

INVESTOPEDIA EXPLAINS 'Multilateral Netting'

Although multilateral netting offers a host of advantages to member parties, it also has some disadvantages. To begin with, risk is shared; hence, there is less incentive to carefully evaluate the credit worthiness of each and every transaction. Secondly, there are sometimes legal issues to consider. Not all closeout bilateral netting arrangements are recognized by law. In fact, some argue that such arrangements undermine the interests of third-party creditors.

RELATED TERMS
  1. Bilateral Credit Limit

    Intraday credit limits set by two institutions for use with one ...
  2. Capped Option

    A security that features a maximum limit on the holder's profit ...
  3. Interest Rate Swap

    An agreement between two parties (known as counterparties) where ...
  4. Chooser Option

    An option contract that allows the holder to decide whether it ...
  5. Bankruptcy

    A legal proceeding involving a person or business that is unable ...
  6. Currency Swap

    A swap that involves the exchange of principal and interest in ...
RELATED FAQS
  1. How can I calculate funds from operation in Excel?

    In general, the terms "work in progress" and "work in process" are used interchangeably to refer to products midway through ... Read Full Answer >>
  2. When does Q4 start and finish?

    Most companies such as Facebook have financial years that end on December 31st. For these companies, the fourth quarter begins ... Read Full Answer >>
  3. When is it useful to look at a company's fixed asset turnover ratio?

    It is useful to look at a company's fixed asset turnover ratio when an outside observer, such as an investor, wants to know ... Read Full Answer >>
  4. What is the difference between perfect and imperfect competition?

    Perfect competition is a microeconomics concept that describes a market structure controlled entirely by market forces. In ... Read Full Answer >>
  5. How difficult is it to understand business analytics?

    In the abstract, business analytics is the study of financial, economic, consumer and production data through statistical ... Read Full Answer >>
  6. At what levels are core competencies required for businesses operating in the primary ...

    Core competencies help businesses understand their best abilities to perform in the market. Primary sector businesses mine ... Read Full Answer >>
Related Articles
  1. Economics

    Understanding Organizational Behavior

    Organizational behavior is the study of how humans interact in group environments.
  2. Economics

    Understanding Implicit Costs

    An implicit cost is any cost associated with not taking a certain action.
  3. Economics

    What are Deliverables?

    Deliverables is a project management term describing an object or function that must be provided or completed by a certain due date.
  4. Economics

    What Does Capital Intensive Mean?

    Capital intensive refers to a business or industry that requires a substantial amount of money or financial resources to engage in its specific business.
  5. Taxes

    Understanding Write-Offs

    Write-off has different meanings depending on the context in which it is used, but generally refers to a reduction in value due to expense or loss.
  6. Economics

    How Does a Company Use Raw Materials?

    Raw materials are the basic components of a finished product.
  7. Investing Basics

    What is a Private Company?

    A private company is any corporation that does not have shares publicly traded in the equity markets.
  8. Economics

    What is an Original Equipment Manufacturer (OEM)?

    An OEM is a company whose products are used as components in another company's product.
  9. Economics

    What are Capital Goods?

    Capital goods are assets with a useful life of more than one year that are used for the production of income.
  10. Investing Basics

    Do You Know These Odd Investing & Business Terms?

    Think investment talk is boring? There are plenty of terms to liven up any conversation about Wall Street and finance. You should try some of them out.

You May Also Like

Hot Definitions
  1. Social Security

    A United States federal program of social insurance and benefits developed in 1935. The Social Security program's benefits ...
  2. American Dream

    The belief that anyone, regardless of where they were born or what class they were born into, can attain their own version ...
  3. Multicurrency Note Facility

    A credit facility that finances short- to medium-term Euro notes. Multicurrency note facilities are denominated in many currencies. ...
  4. National Currency

    The currency or legal tender issued by a nation's central bank or monetary authority. The national currency of a nation is ...
  5. Treasury Yield

    The return on investment, expressed as a percentage, on the debt obligations of the U.S. government. Treasuries are considered ...
  6. Bund

    A bond issued by Germany's federal government, or the German word for "bond." Bunds are the German equivalent of U.S. Treasury ...
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!