In every case in which netting is applied, the Authorised Person must demonstrate to the Regulator that it has the following in place:
(a) A netting contract with the counterparty or other agreement which creates a single legal obligation, covering all included transactions, such that the Authorised Person would have either a claim to receive or obligation to pay only the net sum of the positive and negative mark-to-market values of included individual transactions in the event a counterparty fails to perform due to any of the following:
(iii) liquidation, or
(iv) similar circumstances.
(b) Written and reasoned legal reviews that, in the event of a legal challenge, the relevant courts and administrative authorities would find the exposure of the Authorised Person to be such a net amount under:
(i) The law of the jurisdiction in which the counterparty is chartered and, if the foreign branch of a counterparty is involved, then also under the law of the jurisdiction in which the branch is located;
(ii) The law that governs the individual transactions; and
(iii) The law that governs any contract or agreement necessary to effect the netting.
(c) Proceduresto ensure that the legal characteristics of netting arrangements are kept under review in light of the possible changes in relevant law.