This page is about the finance term. For the fabric called "netting" see Net (textile)

Net (textile)

Net or netting is any textile in which the warp and weft yarns are looped or knotted at their intersections, resulting in a fabric with large open spaces between the yarns....

.

In general, netting means to allow a positive value and a negative value

Negative value

Negative value may refer to:*Negative predictive value in statistics*Negative ethic or philosophic value*insolvency...

 to set-off

Set-off (law)

In law, a set-off is a statutory defense to the whole or to a portion of a plaintiff's claim. It had no existence under the English common law, being created by 2 Geo. II c. 22 for the relief of insolvent debtors, although set-off was recognized in equity...

 and partially or entirely cancel each other out.

In the context of credit risk

Credit risk

Credit risk is an investor's risk of loss arising from a borrower who does not make payments as promised. Such an event is called a default. Other terms for credit risk are default risk and counterparty risk....

, there are at least three specific types of netting:

• Close-out netting: In the counterparty
  Counterparty
  A counterparty is a legal and financial term. It means a party to a contract. A counterparty is usually the entity with whom one negotiates on a given agreement, and the term can refer to either party or both, depending on context....
  
   bankruptcy
  Bankruptcy
  Bankruptcy is a legal status of an insolvent person or an organisation, that is, one that cannot repay the debts owed to creditors. In most jurisdictions bankruptcy is imposed by a court order, often initiated by the debtor....
  
   or any other relevant event of default specified in the relevant agreement if accelerated (i.e. effected), all transactions or all of a given type are netted (i.e. set off against each other) at market value
  Market value
  Market value is the price at which an asset would trade in a competitive auction setting. Market value is often used interchangeably with open market value, fair value or fair market value, although these terms have distinct definitions in different standards, and may differ in some...
  
   or if otherwise specified in the contract or if it is not possible to obtain a market value at an amount equal to the loss suffered by the non-defaulting party in replacing the relevant contract. The alternative would allow the liquidator
  Liquidator (law)
  In law, a liquidator is the officer appointed when a company goes into winding-up or liquidation who has responsibility for collecting in all of the assets of the company and settling all claims against the company before putting the company into dissolution....
  
   to choose which contracts to enforce and which not to (and thus potentially "cherry pick"). There are international jurisdictions where the enforceability of netting in bankruptcy has not been legally tested.

• Netting by novation
  Novation
  In contract law and business law, novation is the act of either replacing an obligation to perform with a new obligation, or replacing a party to an agreement with a new party...
  
  : The legal obligations of the parties to make required payments under one or more series of related transactions are canceled and a new obligation to make only the net payments is created.

• Settlement or payment netting: For cash
  Cash
  In common language cash refers to money in the physical form of currency, such as banknotes and coins.In bookkeeping and finance, cash refers to current assets comprising currency or currency equivalents that can be accessed immediately or near-immediately...
  
   settled trades, this can be applied either bilaterally or multilaterally and on related or unrelated transactions.

• *Multilateral Net Settlement System: A settlement system in which each settling participant settles its own multilateral net settlement position (typically by means of a single payment or receipt).

• *Bilateral Net Settlement System: A settlement system in which every individual bilateral combination of participants settles its net settlement position on a bilateral basis.

Netting decreases credit exposure, increases business with existing counterparties, and reduces both operational and settlement risk and operational costs.

In the context of pollution

Pollution

Pollution is the introduction of contaminants into a natural environment that causes instability, disorder, harm or discomfort to the ecosystem i.e. physical systems or living organisms. Pollution can take the form of chemical substances or energy, such as noise, heat or light...

control, netting refers to a procedure whereby a company can create a new pollution source only if it makes equal reductions in pollution elsewhere in the company, i.e. it cannot acquire new permits from the outside.

In BASEL-I requirements Netting was missing. BASEL II introduced netting in its requirement.