Insolvency Set-off, Close-out Netting and Clearing

9 Pages Posted: 14 Nov 2017 Last revised: 15 Nov 2018

See all articles by Philipp Paech

Philipp Paech

London School of Economics - Law Department

Date Written: July 9, 2018

Abstract

A owes 20 GBP to B and B owes 30 to A ... what are they going to do if they want to be efficient? The answer is probably 'set off'. However, anything beyond this initial reaction is jurisdiction-sensitive and relatively confusing because, as always, labels such as set off, netting, clearing, etc. do not help per se and one has to ask what specific legal mechanisms achieve in functional terms. As a baseline, we can retain that 'net positions' such as set off, netting and clearing are capable of collapsing or combining exposures between parties. This paper maps the economic and legal functionalities of the various types of net positions, in both bilateral and multilateral relationships.

Keywords: set off, close-out netting, insolvency, clearing, settlement, finality, CCP, British Eagle, Ansett

JEL Classification: K11, K12, K22, K33

Suggested Citation

Paech, Philipp, Insolvency Set-off, Close-out Netting and Clearing (July 9, 2018). Available at SSRN: https://ssrn.com/abstract=3046878 or http://dx.doi.org/10.2139/ssrn.3046878

Philipp Paech (Contact Author)

London School of Economics - Law Department ( email )

Houghton Street
London WC2A 2AE, WC2A 2AE
United Kingdom

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