Netting

Netting is a fundamental financial risk management technique that legally aggregates multiple financial obligations—such as payments, deliveries, or exposures—between two or more parties into a single, smaller net obligation, significantly reducing counterparty credit risk and settlement risk. This process is essential for maintaining stability in global financial markets, with close-out netting being particularly critical for reducing the notional gross exposure of over-the-counter (OTC) derivatives, which can exceed $600 trillion globally, down to a manageable net exposure.