Payments netting

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 ?
Mr Elias said 3,000 customers with legitimate insurance for their phones to cover theft and the cost of fraudulent calls were duped into exchanging their deals for heavily discounted one off payments netting around PS300,000.
Wood (1994) points out that payments netting is meaningless unless it is legally supported by close-out netting rights in the event of default by one of the counterparties.
Payments netting is a method of reducing exposures in the event of default.
Payments netting occurs when firms, primarily financial institutions, are exchanging payments on a regular basis and net the amounts due against those to be received at the same time and transfer the difference.