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The fragmented approach toward close-out netting provisions in Australia, Indonesia, Malaysia and Singapore compared

Author

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  • Robert Walters

    (Victoria University
    The New University)

  • Leon Trakman

    (University of New South Wales)

Abstract

Close-out netting provisions are a relatively new addition to the financial legal framework. Their primary objective is to strengthen the regulation and manage the risk associated with over-the-counter derivatives. They have been adopted by the financial industry and used in financial transactions to assist in controlling and allocating financial risks. They are becoming an effective tool that provides an efficient process in calculating and settling on a net balance. However, they have been criticized for being unable to save some of the larger financial institution throughout the 2008 Global Financial Crisis. This paper examines how close-out netting provisions are applied under the UNIDROIT Principles which serves as the benchmark on how jurisdictions have incorporated them into national law. It examines the current approach taken by Australia, Indonesia, Malaysia and Singapore, stressing their importance in the increasing interconnected financial markets across Southeast Asia and Oceania. While this paper is limited in its scope only referring to the international framework and four national countries, the analysis undertaken can arguably be applied to other national and supranational legal systems. The paper challenges the fragmented approach to regulation of close-out netting provisions in a global setting. It highlights the divergent approaches currently adopted in defining, negotiating, drafting, interpreting and enforcing close-out netting provisions. It argues that nation states should adapt the UNIDROIT Principles in light of their national law and policy. It also presents a way forward in enforcing close-out netting provisions within contracts.

Suggested Citation

  • Robert Walters & Leon Trakman, 2020. "The fragmented approach toward close-out netting provisions in Australia, Indonesia, Malaysia and Singapore compared," Journal of Banking Regulation, Palgrave Macmillan, vol. 21(3), pages 224-240, September.
    • Handle: RePEc:pal:jbkreg:v:21:y:2020:i:3:d:10.1057_s41261-019-00109-w
    DOI: 10.1057/s41261-019-00109-w
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    References listed on IDEAS

    as
    1. Bliss, Robert R. & Kaufman, George G., 2006. "Derivatives and systemic risk: Netting, collateral, and closeout," Journal of Financial Stability, Elsevier, vol. 2(1), pages 55-70, April.
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