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. Currency Swap

    A swap that involves the exchange of principal and interest in ...
  3. Interest Rate Swap

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

    The option to enter into an interest rate swap. In exchange for ...
  5. Swap

    Traditionally, the exchange of one security for another to change ...
  6. International Swaps and Derivatives ...

    An association created by the private negotiated derivatives ...
Related Articles
  1. Understanding S Corporations
    Investing Basics

    Understanding S Corporations

  2. Top Receipts To Keep In Your Files
    Budgeting

    Top Receipts To Keep In Your Files

  3. The LLC Operating Agreement Template, ...
    Investing Basics

    The LLC Operating Agreement Template, ...

  4. Turn Your Passion Into A Profitable ...
    Entrepreneurship

    Turn Your Passion Into A Profitable ...

comments powered by Disqus
Hot Definitions
  1. Effective Annual Interest Rate

    An investment's annual rate of interest when compounding occurs more often than once a year. Calculated as the following: ...
  2. Debit Spread

    Two options with different market prices that an investor trades on the same underlying security. The higher priced option ...
  3. Odious Debt

    Money borrowed by one country from another country and then misappropriated by national rulers. A nation's debt becomes odious ...
  4. Takeover

    A corporate action where an acquiring company makes a bid for an acquiree. If the target company is publicly traded, the ...
  5. Harvest Strategy

    A strategy in which investment in a particular line of business is reduced or eliminated because the revenue brought in by ...
  6. Stop-Limit Order

    An order placed with a broker that combines the features of stop order with those of a limit order. A stop-limit order will ...
Trading Center