CLOSE_OUT

Close-out netting applies where one party is bankrupt or otherwise defaults (exact terms are contract specific), and allows their counterparty to net obligations without requiring approval from all parties. For example, if Bank A owes Bank B £1m, and Bank B owes Bank A £1m, in the case of Bank B defaulting this would enable Bank A to net out the two obligations to zero, rather than being legally obliged to pay £1m without any realistic expectation of the debt to them being paid. Realistically this is limited to bilateral netting, to simplify determining which party must sign the netting transaction.