Germany’s Highest Court Invalidates Standard Close-Out Netting Clause for Financial Derivatives—BaFin Order Neutralizes the Effects of the Decision

7 July 2016
View Client Update

Key takeaways

  • Close-out netting clauses frequently used in master agreements for derivative transactions were held invalid by the German Federal Court of Justice.
  • The German regulator BaFin immediately issued an interim order neutralizing the effects of the decision to avoid disrupting effects on the market.
  • Legislative action is expected to commence with the aim to ensure the continuing enforceability of close-out netting clauses in market standard master agreements.