Research On Legal System Of Close-out Netting In International Derivatives

Since1970s, financial derivatives developed rapidly and becamepopular in the financial industry. The function which to avoid risk promotethe activity of international financial market. As a double-edged sword,derivatives would lead to disaster if they are used improper. In orderto maintain the security and stability of financial market, ISDA publisheda series of documents to make a standard to the financial derivativesmarket, especially over-the-counter market. With the widely use of ISDAMaster Agreement, close-out netting system becomes to be the indispensablechoice to control the risk of derivatives transactions. However, close-outnetting maybe invalid when one party goes broken, because of the conflictwith insolvency law. As trading practices, there is a lack of legal supportof close-out netting in China. The thesis comparing legislation ofclose-out netting in some developed countries, analyzes its legal validityin Chinese law, and then gives some comments and suggestions to establish close-out netting system for China.In addition to the introduction and conclusion, the thesis consistsof four chapters.Chapter I: an overview of financial derivatives market and ISDA MasterAgreement. The author firstly introduces the background, the structureand three system of ISDA Master Agreement，including Single AgreementSystem, Flawed Asset System and Close-out Netting System. Close-outNetting System is the core and highlight of ISDA Master Agreement.Chapter II: a study close-out netting system and its value analysis.The author expounds the right of early termination, the calculations andclose-out netting of ISDA Master Agreement. Compared with set-off,close-out netting system has its feature. By analyzing the advantages anddisadvantages of close-out netting, the author wants to clarify theimportance of close-out netting system.Chapter III: legal analysis of close-out netting system in China. Theauthor analyzes the legal validity and enforceability of close-out nettingunder the existing framework of Chinese law.Chapter IV: exploration for close-out netting legislation in China.With reference to foreign practice experience, the author makes somesuggestions to close-out netting legislation in China.