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Financial Instruments: Presentation

Date recorded:

Education Session: Right of offset

The Boards were presented three short presentations from the International Swaps and Derivatives Association (ISDA), independent legal experts, and representative of large international banks to discuss the mechanics and conditions of master netting agreements and potential implications on offsetting principles for financial statement presentation.

he ISDA representatives described the 2002 ISDA Master Netting Agreement - its features, structure, components, and functioning. In particular, they explained the differences in functioning of close-out netting and payment netting. Most attention was paid to the termination and close-out netting provisions, and practical issues as calculation of the net amount and experience under current market conditions.

The legal presentation focused on three types of netting - set-off on insolvency of counterparty, close-out netting on insolvency of counterparty and settlement netting - as well as application of netting and insolvency rules in the international context.

Finally, the presentation by the large international banks highlighted the differences between the US GAAP requirements and IFRSs and stated arguments supporting net presentation of derivatives under IFRSs.

This was an education session only, no decisions were made. The Boards intend to use the input from these presentations and following brief discussion in their deliberation process.

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