The Danish rules on netting are found in Sections 57 and 58 of the Securities Trading Act (STA) of December 20 1995 which entered into force on May 1 1996.
In contrast to the previous Danish rules on elimination, including those of the Bankruptcy Act, netting under Section 57 of the STA is now also possible where the normal reciprocity requirement is not met.
If the Section 57 requirements are met, netting in an approved clearing association or payment system can be carried out as if bankruptcy had not occurred. Covered by the netting agreement are claims that have been reported to the system before the bankruptcy subject to the rules of the system in question. Netting by close-out is possible under the STA.
The rules in Section 58 relate only to bilateral netting agreements and are not limited to netting in clearing associations or payment systems. Section 58 of the STA includes any netting of claims which have arisen between the parties in connection with dealing in securities and currency.
If a netting agreement exists, an entity in receivership is precluded from its normal right under Section 55 of the Bankruptcy Act under which the administrator can decide which reciprocal agreement it wants to enter into. Any concerns with regard to cherry-picking are therefore reduced.
Netting in bankruptcy is only permitted if the netting agreement covers netting in bankruptcy. Otherwise the Bankruptcy Act applies, though it also allows elimination if both claims are not due.
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