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ADGM OTC Derivatives Regulations Recognized By ISDA

by Lorys Charalambous, Lowtax.net, Cyprus
26 September, 2017

Abu Dhabi Global Market (ADGM), the international financial center in Abu Dhabi, has welcomed news that its over-the-counter derivatives regulations meet global industry standards.

In a legal opinion prepared by international law firm Shearman & Sterling LLP for the International Swaps and Derivatives Association (ISDA), a trade organization of participants in the market for over-the-counter derivatives, ADGM's legal regime is recognized as an "effective netting regime." This means the netting provisions contained in the ISDA 1992 and 2002 Master Agreements are enforceable under the ADGM Insolvency Regulations 2015.

Close-out netting is commonly used to manage default risks in derivatives contracts in over-the-counter derivatives transactions. It is a legal mechanism where two counterparties agree to offset their obligations upon default, in priority to the application of insolvency tools typically used when a debtor is being wound up.

ADGM's netting framework, contained in the ADGM Insolvency Regulations 2015, is based on the ISDA Model Netting Act. The ISDA Model Netting Act provides example text for a netting law, and has been the basis of regimes adopted by a number of countries that have introduced netting into their jurisdiction.

Commenting on the news, ADGM said the favorable opinion reinforces its position in providing a robust legal framework, which allows financial institutions and corporates to efficiently expand their businesses, and confidently manage risk.

ADGM is an international financial center established in 2013. It offers a range of attractive benefits to firms, including exemption from taxes guaranteed for 50 years, and relaxed rules on the repatriation of profits. ADGM permits 100 percent foreign ownership.

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