When an event occurs, the claims and obligations under the trades are settled together, either at the other party's request or through automatic termination on the occurrence of the event. Which form applies, and the details of the settlement, are set by the master agreement1. The examination manual of the US Federal Reserve Board asks that the events that give a party the right to end the trades be defined clearly and precisely2.

Notes

  1. 全国銀行協会 金融法務研究会 (financial law study group of the Japanese Bankers Association), "デリバティブ取引に係る諸問題と金融規制の在り方" (Issues in derivatives transactions and the approach to financial regulation) (March 2018), Chapter 2 (神田秀樹), "２　日本法における二者間ネッティングの取扱い" (2. Treatment of bilateral netting under Japanese law), pages 23–24 (in Japanese). ↩

  2. Board of Governors of the Federal Reserve System, Trading and Capital-Markets Activities Manual (July 2011 edition), Section 2070.1 "Legal Risk" (September 2002), "Trigger Events", page 2. ↩