Netting usually happens after the trading day, in a separate system. Execution stage netting moves it to the point of the trade. What that changes, and what it does not.
Netting means offsetting what parties owe each other, so that fewer and smaller payments have to settle. Most netting in interbank markets happens after the trading day, in post trade systems, hours after the trades themselves were done.
Execution stage netting moves that computation to the point of the trade. This piece sets out what that changes, and what it does not.
Between execution and netting, every obligation sits open at its gross size. Gross obligations have to be funded or covered by credit and intraday liquidity, and the longer they sit gross, the more of a bank's balance sheet they hold.
Settlement cycles are getting shorter. As the time between a trade and its settlement shrinks, so does the room to net after the fact. Netting that waits for the end of the day is netting that arrives later and later relative to when the money has to move.
On IDBX, net obligations are computed as trades execute. Every matched trade updates each participant's net position straight away, so a desk can see what it will actually owe and be owed before settlement, rather than after it.
AIDANN, the IDBX trade assistant, reads that netting set and explains it. It holds no permission to trade or to change it.
IDBX nets only within a compatible settlement set, meaning the same rail, the same currency and the same settlement date. A dollar obligation settling tomorrow never nets against a euro obligation, or against a dollar obligation settling next week. Obligations that do not share all three are kept apart.
That rule is what makes the net figure something a treasury can rely on. Every number traces back to trades that will settle together.
IDBX does not become a counterparty to the trades it nets. It does not novate them and it does not take principal risk. It computes net obligations and orchestrates them to the infrastructure that settles them. Post trade netting where required, clearing, settlement and finality stay with that infrastructure.
Execution stage netting is also not free money. The benefit depends on how much of a participant's flow shares a settlement set. A desk whose trades all point the same way has little to offset, and no netting engine changes that. The saving is real where flows cross, and only there.
A live netting engine runs on the AIDANN page, with every figure checked on screen. The method behind it is in Watch it compute.
What is execution stage netting?
The calculation of net obligations at the moment trades execute, rather than in a post trade process after the trading day.
Is it the same as multilateral netting?
No. Multilateral netting describes offsetting obligations across many parties. Execution stage netting describes when and where the net is computed. On IDBX, it is computed at execution, inside each settlement set.
Does IDBX become a counterparty?
No. IDBX does not become a counterparty, does not novate and does not take principal risk.
Does it replace clearing?
No. Clearing, settlement and finality remain with the settlement infrastructure. IDBX hands each obligation to the rail that should settle it.
What can be netted together?
Only obligations that share a rail, a currency and a settlement date.