For example, petroleum companies active in trading crude oil have bilaterally netted their oil trades for many years and have also participated in a multilateral netting arrangement.
In contrast to a payment-only netting system like CHIPS, the Federal Reserve also directly supports net settlement for two arrangements in which payments associated with the clearing of financial instruments are netted and settled across Fedwire.
In effect, once a tax year is included in a global netting computation, the netted
interest amount will be reflected and will generally not be subject to future adjustment.
To limit these risks, many financial institutions enter into netting contracts under which the payment obligations between two parties, or among several parties, are netted
so that each party to the netting contract is required or entitled to make or to receive only a single payment that is the net of all of that party's transactions.
In the Institute's view, an equitable tax policy demands that mutually offsetting overpayments and underpayments be netted
before the application of the statutory interest rates.