September 21, 2012

A public meeting was held, under the auspices of the State Department’s Advisory Committee on Private International Law, on September 21, 2012 at the Federal Reserve Bank of New York, 33 Liberty Street, New York, NY.

The public meeting was convened to discuss upcoming negotiations being held by UNIDROIT (the International Institute for the Unification of Private Law) to further develop a draft set of principles regarding the enforceability of close-out netting provisions. Close-out netting is a contractual mechanism used by financial institutions and other market participants to reduce their risk exposure, and is thus a key tool for preserving the stability of the financial system. An UNIDROIT study group has produced a draft of the principles, which are intended to serve as a guide for evaluating whether the legal systems in various jurisdictions around the world adequately recognize the enforceability of netting provisions. UNIDROIT is holding intergovernmental meetings in Rome on October 1-5, 2012, to discuss the draft; it is expected that at least one more round of intergovernmental meetings will be needed before the project is completed.

During the meeting, there was discussion in particular of the following issues, as they relate to the draft principles:

- The definition of close-out netting, i.e., the various steps that are involved when netting occurs.

- The types of parties that should be eligible to have their transactions netted.

- The types of obligations that should be eligible to be netted.

- The treatment of netting provisions in insolvency proceedings.

- The choice of law problems raised by netting in a cross-border context.

No matter was resolved. No report was approved.