DIFC Posts Consultation Papers for Public Comment on DIFC Netting LawPress Release23 Jul 2014 06:45 am
Dubai: 23rd July 2014 - Dubai International Financial Centre (DIFC) Authority has announced the proposed introduction of a DIFC Netting Law, for public consultation.
The main aim of netting legislation is to create legal certainty 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.
The proposed 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.
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 in an insolvency of a counterparty located in the UAE, including a counterparty located in the DIFC. The reason for introducing a netting legislation in the DIFC is to statutorily underpin close-out netting in the DIFC and enable DIFC firms to benefit from this important risk mitigating technique.
The proposed DIFC Netting Law has been posted for a period of 45 days public consultation with the deadline for providing comments ending on 5 September 2014. The DIFC Authority aims to incorporate relevant comments from organisations to further refine the legislative proposal and eventually proceed to enact a new DIFC Netting Law.
Click here for a copy of the consultation paper and legislative proposal.