Key Points:
Currently it's unclear when a party can exercise a
contractual right to close out a netting contract with an ADI in
statutory management.
Close-out netting provisions are a common feature of derivatives
documentation. They are typically relied upon by parties to reduce
their credit risk to each other under their derivatives exposures.
The more legal certainty there is over the enforceability of
close-out netting provisions in any particular jurisdiction, the
more confidence potential counterparties will have in their ability
to manage their credit risk under derivatives exposures with
entities based in that jurisdiction.
There has traditionally been a relatively robust view on the
enforceability of close-out netting provisions under Australian
law. Since the enactment of the Payment Systems and Netting
Act 1998 (PSN Act), this view has been even
more robust where those provisions form part of a "close-out
netting contract" for the purposes of the PSN
