DIFC Authority Announces Enactment of DIFC Netting LawPress Release 14 Dec 2014 05:36 am
Dubai: 14 December 2014 - Dubai International Financial Centre (DIFC) Authority announced today that His Highness Sheikh Mohammed bin Rashid Al Maktoum, in his capacity as the Ruler of Dubai, has enacted the Netting Law, DIFC Law No. 2 of 2014 (the "Netting Law").
The enactment of the Netting Law will provide legal certainty in the DIFC as to the enforceability of close-out netting in the case of insolvency. Close-out netting is a legal mechanism which reduces exposure and therefore risk between two counterparties.
Close-out netting is not currently statutorily underpinned in the UAE, as a result there is some uncertainty as to the enforceability of derivative transactions where a counterparty located in the UAE is under insolvency. The Netting Law statutorily underpins close-out netting in the DIFC and enables DIFC firms to benefit from this important risk mitigating technique.
The Netting Law is based on the International Swaps and Derivatives Association (ISDA) model law. The ISDA model law provides example text for a netting law, and has been the model used in a number of countries that have introduced netting.
Approximately forty five jurisdictions worldwide have enacted specific netting legislation, while netting in a number of other jurisdictions applies as a general principle of law. There are approximately sixty jurisdictions worldwide where the netting analysis is positive, however, to date, no jurisdiction in the GCC region has obtained a positive netting opinion. The Netting Law is the first legislation of its kind in the Middle East.