BANK 4.5.18 Criteria for eligible netting agreements

(1) To be an eligible netting agreement, a netting agreement:
(a) must be in writing;
(b) must create a single obligation covering all transactions and collateral included in the agreement and giving the banking business firm the following rights:
(i) the right to terminate and close-out, in a timely way, all the transactions included in the netting agreement;
(ii) the right to net the gains and losses on those transactions (including the value of any collateral) so that the firm either has a claim to receive, or an obligation to pay, only the net sum of the close-out values of the individual transactions;

Note For forward contracts, swaps, options and similar derivative transactions, this right will include the positive and negative mark-to-market values of the individual transactions.
(iii) the right to liquidate or set-off collateral if either party to the agreement fails to meet its obligations because of default, liquidation, bankruptcy or other similar circumstances;
(c) must not be subject to a walkaway clause; and
(d) must be supported by a written and reasoned legal opinion that complies with rules 4.5.20 to 4.5.22.
(2) A banking business firm must not recognise a netting agreement as an eligible netting agreement if it becomes aware that a financial services regulator of the counterparty is not satisfied that the agreement is enforceable under the laws of the regulator's jurisdiction. This rule applies regardless of any legal opinion obtained by the firm.
(3) A netting agreement is not an eligible netting agreement if there is doubt about its enforceability.
Derived from QFCRA RM/2014-2 (as from 1st January 2015).