Analysis For The Legal Issues Of Netting And Set-Off Of ISDA Agreement

With the promotion of the science and technology, international trade and international investment rapidly increased, the global market of international derivatives instruments is blooming now. International derivatives instruments can avoid risk and keep value, and make profit in the venture investment, the dual function of the international derivatives instruments make it play the important role in financial market.The International Swaps and Derivatives Association ("ISDA") promulgate the serials agreements ("ISDA" Agreement) for the relevant dealer's reference. The ISDA Agreement has been widely adopted in the international financial derivatives transaction and almost become the sole reference of the transaction, provides a lot of important legal issues. I am intends to make analysis for the legal issues of netting and set-off based on the general introduction of ISDA Agreement. I aimed to help better understanding of the agreement and explicit rules of the Chinese dealer, give some analysis and suggestion on the current Bankruptcy Law through the method of making analysis of the enforceable of netting and set-off in the context of Chinese law as they currently stand, and hope to mitigate the legal risk of deemed as invalidation and can not be enforced. Because I know China has the strong demand of the international financial derivatives instruments.ISDA Agreement provides the payment netting, netting by close-out, set-off. Accordingly, a lot different legal jurisdiction countries give different definition and category of the netting and set-off involving in the bankruptcy, which some enforce the netting and set-off involving in the bankruptcy and some while not. The main disputes focus on the enforceable and efficiency of the netting by close-out. Recently, many financial developed countries start to establish the relevant laws and give the support of the netting by close-out, left the netting by close-out out of restriction of the Bankruptcy Law. There are a lot of problems in the current People's Republic of China of Bankruptcy Law of Enterprise which become effective on 1 June, 2007 as follows: 1, the restriction of the term of application of creditor's right; the creditor has to file the application to set-off or netting prior to the expiration of the term under the bankruptcy procedure; 2, the restriction of the procedure of bankruptcy; netting and set-off become passivity; 3, the threaten of the withdraw right of bankruptcy; the manager of the assets has the power to pick up the agreement and even withdraw some agreements in some circumstances; 4, the fighting of the public power. The public power sometime disturbs the successfully netting and set-out in some transactions. I am of the view that it is necessary to confirm the effective of netting by close-out according to the advanced principle and legislation factors.