New DIFC Netting Law: A boost for derivatives?

Towards the end of 2014, the Dubai International Financial Centre (DIFC) enacted the DIFC Netting Law, which is the first of its kind in the Middle East. The Netting Law is based on the International Swaps and Derivatives Association model law.

The Netting Law gives certainty to close-out netting provisions, particularly in an insolvency situation. The concept of close-out netting is designed to operate at a master agreement level, allowing a party (usually the non-defaulting party) to terminate all the transactions, including those transactions that have not yet matured, with a counter-party; set off the dues and liabilities between the parties on a particular day; and arrive at a net amount payable by one party (usually the defaulting party) to the other party.

Enforceability of close-out netting, particularly in a situation of potential or actual insolvency of a counter-party, is one of the key credit-risk considerations for any party entering into a derivative or similar transaction. The Netting Law provides ample clarity and certainty on this front.

Vivek Agrawalla is an associate at Afridi & Angell, a UAE-based law firm with offices in Abu Dhabi, Dubai, the DIFC and Sharjah.