China Banking Regulatory Commission’s Reply to Questions on Close-Out Netting

With the global implementation of variation margin (VM) for non-centrally cleared derivatives, there has been much attention on the enforceability of close-out netting provisions under master derivative agreements with financial institutions incorporated in China. Asia Risk Magazine alone has recently published three separate articles looking at this hot topic and the divergence of views in the industry.

It is therefore extremely timely that the China Banking Regulatory Commission (CBRC) has made public its reply dated 4th July 2017 (the Reply) in response to certain questions arising on close-out netting to the Financial and Economic Affairs Committee of the National People’s Congress (NPC). The Reply is of great significance since it contains positive statements from the highest places in the China Government on their support for close-out netting and its effect on regulatory capital treatment.

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