Prior to the introduction of the Compensation Act, the use of derivative contracts by financial institutions was commonplace. However, the final analysis of the United Arab Emirates, which was the basis of these agreements, contained a number of qualifications, which meant that the United Arab Emirates could not be considered a jurisdiction in which the applicability of compensation was certain. There was even a case of basic precision that found derivative contracts to be unenforceable. The compensation law is a positive step towards clarifying and certainty in local and international markets that the fundamental aspects of clearing and derivative contracts are recognized in the United Arab Emirates. This is another positive and dynamic step in the rapid implementation of the UAE`s legal system to promote greater financial activity in the country and strengthen the country`s position as the world`s leading commercial and financial centre. Compensation is widespread in swap markets. Suppose, for example, that two parties enter into a swap agreement on a certain guarantee and that they owe each other money. At the end of the swap period, this clearing process takes place for a variety of swaps, but there is a kind of swap where clearing does not occur. In the case of foreign exchange swequilles, the fictitious amounts are exchanged in different currencies for their respective currencies and all payments due are fully exchanged between two parties; There is no compensation. The UAE Decretal Federal Law No 10 of 2018, regarding netting (Netting Law) was issued on 20 September 2018 regulating netting for the UAE on a standalone basis and placing the UAE jurisdiction between the positive nettings of sophisticated legal systems by following the guidelines of the International Swaps and Derivatives Association (ISDA) Netting Model Act 2006. Potential conflicts with bankruptcy law and the UAE civil code are addressed in the text of the Compensation Act. Recognition of compensation is also included in the Decretal Bundesal Law No. 14 of 2018 through the Central Bank – organisation of financial institutions and activities (new banking law).
Also known as payment, the settlement aggregates the amount owed between the parties and networks the cash flow into a payment. In other words, only the net difference in total amounts is provided or exchanged by the party with the net liability commitment. As a general rule, a payment contract must be available before the billing date. Otherwise, each individual payment would be due by and by all parties involved. The multilateral network is a network involving more than two parties. In this case, a clearing house or a central exchange is often used.