Netting Sets

Netting sets are defined groups of financial contracts between two counterparties that are eligible to be netted against each other. When a default occurs, all contracts within a netting set are terminated and aggregated into a single net claim.

This is a critical legal mechanism that prevents the cherry-picking of profitable contracts by a bankrupt party. By grouping contracts into a netting set, participants can significantly reduce their credit exposure to a single counterparty, as the net value is usually much lower than the gross value of all individual contracts combined.