24 September 2017, Abu Dhabi, UAE : Abu Dhabi Global Market (ADGM), the International Financial Centre in Abu Dhabi, is pleased to announce that the International Swaps and Derivatives Association (ISDA) has recognised ADGM as an effective netting regime and published a positive legal opinion to its members. This further reinforces ADGM’s position in providing a robust legal framework, which allow financial institutions and corporates to efficiently expand their businesses and confidently manage risk.
ISDA has published the legal opinion prepared by Shearman & Sterling LLP for ISDA and its members which confirms the enforceability of ISDA’s 1992 and 2002 Master Agreements under the ADGM’s legal regime. The ISDA opinion addresses the enforceability of netting provisions contained in both ISDA Master Agreements.
Close-out netting is commonly used to manage default risks in derivative contracts in over-the-counter derivatives transactions. It is a legal mechanism where two counterparties agree to offset their obligations upon default, in priority to the application of insolvency tools typically used when a debtor is being wound up.
ADGM’s netting framework, contained in the ADGM Insolvency Regulations 2015, is based on the ISDA Model Netting Act. The ISDA Model Netting Act provides example text for a netting law and has been the basis of regimes adopted by a number of countries that have introduced netting into their jurisdiction.
The ADGM Insolvency Regulations 2015, including the netting provisions, are part of ADGM’s comprehensive legislative framework and an important part of its value proposition for parties, which seek to engage in derivative trading activities.