Jurisdiction(s):
United Kingdom

Related legal acts

Key definition

Netting definition

What does Netting mean? Netting is the contractual mechanism by which two (or more) counterparties with mutual obligations offset them so that only a single net balance is payable—either on each settlement date or following termination or default. It reduces credit and settlement risk and is standard in derivatives (ISDA), repo (GMRA) and securities lending (GMSLA), and in multilateral clearing via a CCP. The term is descriptive across legal contexts. Specific forms include: - Payment netting (periodic offset of payable amounts); - Novation netting (rolling existing trades into a single net position); - Close-out netting (on default/insolvency, terminating transactions, valuing them and netting to a single sum). In the...

Netting versus Contractual Set-off under UK Law: Practical Distinctions, Insolvency Implications, Payment and Close-out Netting, Derivatives and Clearing Houses

Published by a LexisNexis Banking & Finance expert

Practice notes

In finance transactions, the expressions ‘Netting’ and ‘set-off’ are often treated as if they are identical, although they are distinct concepts. The overlap arises because both netting and set-off can deliver the same economic result for the parties. This Practice Note outlines the distinction between netting and contractual set-off and indicates how netting is typically employed in commercial finance transactions.

What is set-off?

To grasp netting, it helps first to consider set-off, particularly contractual set-off. Set-off is the satisfaction of mutual monetary obligations, whereby one sum is discharged to the extent of the other. A right of set-off permits one party (Y) to apply the amount owed to it by the other party (X) against the amount it owes that other party (X), allowing Y to reduce or eliminate its liability to X, e.g. contractual set-off arises where a right of set-off is created by agreement between the parties. For further detail, see Practice Notes: What is set-off and when is it available? and Contractual set-off.

What is netting?

As with contractual set-off, netting is a contractual mechanism between two parties, used to address reciprocal obligations in finance arrangements...

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Web page updated on 21/05/2026

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