Close-out netting is the single biggest risk mitigant for counterparty credit risk arising from over-the-counter derivatives and stock financing transactions such as repos. Netting has been critical to the growth of the OTC derivatives and other capital markets, primarily because it allows banks to calculate regulatory capital and the various pricing adjustments from a smaller net figure, rather than an inflated gross value. Without it, the current size and liquidity of the OTC derivatives market would be unlikely to exist. Read Peter Sime & Akber Datoo’s exclusive feature on Risk.net. Please note: a subscription is required to read this article