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).
Copyright © 2012, Campbell R. Harvey. All Rights Reserved.

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.
Farlex Financial Dictionary. © 2012 Farlex, Inc. All Rights Reserved
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.
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.6 It is the largest payment netting system in the world and processes nearly $1 trillion in payments daily.