Regulatory Alerts2014-12-28
Proposed Regulation on Close-Out Netting
The Central Bank of Bahrain has introduced a proposed regulation establishing the legal enforceability of close-out netting and qualified financial contracts for licensed banks. The framework overrides conflicting insolvency provisions, including the "Zero Hour Rule," to ensure payment system stability, protect collateral arrangements, and prevent liquidators from cherry-picking contracts during bankruptcy proceedings. By harmonizing netting rules with existing banking and payment legislation, the regulation provides licensed banks with immediate close-out rights and regulatory certainty for cross-border derivatives while remaining within Bahrain's jurisdictional scope.
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