The compensation law makes compensation agreements final and enforceable against an insolvent party or a person who provides security to support the insolvent party. A party`s obligations to pay under a clearing contract are not cancelled or suspended due to bankruptcy or insolvency proceedings or the appointment of a liquidator in respect of that party, and any compensation agreement enters into force in accordance with its terms. Compensation means that the value of several positions or payments to be exchanged between two or more parties is compensated. It can be used to determine which party owes compensation in a multi-party contract. Compensation is a general concept that has a number of more specific applications, including in financial markets. Based on the example above, the entity may, in the event of a foreign currency commitment, use risk-related risks, which is a method of hedging foreign exchange or foreign exchange risk, refers to the risk that investors or companies operating in different countries in terms of unpredictable gains or losses resulting from changes in the value of one currency relative to another currency. offsetting the risk of one currency with another similar currency. As a result, Investor B would pay $60,000 (net amount) to Investor A, while Investor A would have nothing to pay Investor B. This is an example of billing or payment. It is important to note that if currencies were different in our example, such a type of compensation would not be used. Network closure usually occurs in the case of a default.
In this case, all existing transactions are completed and booking values are calculated. The values are then billed and the residual value is paid lump sum to the party who owes the payment. The UAE Decretal Federal Law No 10 of 2018, regarding netting (Netting Law) was issued on 20 September 2018 regulating netting for the UAE on a standalone basis and placing the UAE jurisdiction between the positive nettings of sophisticated legal systems by following the guidelines of the International Swaps and Derivatives Association (ISDA) Netting Model Act 2006. Potential conflicts with bankruptcy law and the UAE civil code are addressed in the text of the Compensation Act. Recognition of compensation is also included in the Decretal Bundesal Law No. 14 of 2018 through the Central Bank – organisation of financial institutions and activities (new banking law). Under the Compensation Act, the concept of compensation includes: (i) termination, liquidation and/or acceleration of payment, obligation to deliver, authorization or obligation to receive or demand payments or deliveries under a qualified financial contract (as explained below) entered into under a compensation contract (as explained below) or for which a compensation contract is applicable; (ii) the calculation of the net balance (based on an index of a closing or termination value or other relevant value) for these terminated, liquidated and/or accelerated liabilities or rights; and (iii) the conversion of this estimated value into a single currency.