The “ISDA Close-Out Amount Protocol” refers to standardized legal agreements developed by the International Swaps and Derivatives Association (ISDA) to govern the calculation of termination payments upon the close-out of derivatives transactions. In crypto, this protocol offers a critical template for managing counterparty risk in over-the-counter (OTC) derivatives involving digital assets.
Mechanism
The protocol establishes a clear, pre-agreed methodology for determining the net payment owed between parties when a derivative contract is terminated early due to an event of default or termination event. This minimizes disputes and provides legal certainty in the valuation and settlement of complex financial instruments, enhancing contractual stability.
Methodology
Adopting the ISDA Close-Out Amount Protocol in crypto OTC trading provides a structured legal framework for managing credit and operational risk effectively. It serves as a critical component for institutionalizing digital asset derivatives by offering a recognized standard for dispute resolution and exposure calculation, thereby promoting market stability and participant confidence.
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