Payments netting

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Payments netting

Reducing fund transfers between affiliates to only a netted amount. Netting can occur on a bilateral basis (between pairs of affiliates), or on a multi-lateral basis (taking all affiliates together).

Payments Netting

A way of settling transactions that minimizes the need for funds and securities to actually change hands. To give a very simple example, suppose a brokerage buys shares in a company for $100,000 and later sells them back to the original owner for $120,000. A payments netting method would have the securities stay with the original owner and mandate that this owner transfer $20,000 to the brokerage. Payments netting can be complex because of the number of actors involved, but maximizes the likelihood that, at the end of the trading day, every party has received exactly what it should have, and no more. Clearing houses provide most payment netting services.
References in periodicals archive ?
In the securities markets, each clearinghouse for corporate and municipal securities has established a payment netting scheme with its associated depository, and several organizations are discussing ways to share (and thereby reduce the need for) collateral.
Markit's data and valuation services, and DTCC's Trade Information Warehouse, life-cycle event processing and centralised settlement and payment netting services will remain part of the respective parent companies.
The first type is a "pure" payment netting arrangement in which credit transfers are processed among participants, with settlement across the Federal Reserve's books at the end of the day.
At present, CHIPS is the only "pure" payment netting arrangement for large-value transfers operating in the United States.
CLS Settlement is the only means by which settlement risk can be eliminated with finality using a unique combination of payment versus payment in central bank funds, multilateral payment netting and a standard legal framework, supported by a robust and resilient infrastructure.
NEW YORK & LONDON -- The Depository Trust & Clearing Corporation (DTCC) today announced significant strides in reducing risk in the over-the-counter (OTC) credit derivatives market by successfully executing payment netting for the industry.
The new features facilitate bilateral payment netting, which is the adding and subtracting of all financial obligations between two trading parties, resulting in a single net payment.
The majority of firms elected all six annexes covering continuity of contract, price sources, payment netting, EMU-related definitions, bond options and equity derivatives.