Set-off (law)

In law, set-off or netting is a legal technique applied between persons or businesses with mutual rights and liabilities, replacing gross positions with net positions.^[1][2] It permits the rights to be used to discharge the liabilities where cross claims exist between a plaintiff and a respondent, the result being that the gross claims of mutual debt produce a single net claim.^[3] The net claim is known as a net position. In other words, a set-off is the right of a debtor to balance mutual debts with a creditor.

Any balance remaining due either of the parties is still owed, but the mutual debts have been set off. The power of net positions lies in reducing credit exposure, and also offers regulatory capital requirement and settlement advantages, which contribute to market stability.^[4]