Netting

An agreed offsetting of mutual positions or obligations by trading partners or participants in a system. The netting reduces a large number of individual positions or obligations to a smaller number of positions. Netting may take several forms which have varying degrees of legal enforceability in the event of default of one of the parties.
In the context of credit risk, there are specific types of netting:
close-out netting: In the event of counterparty bankruptcy, all transactions or all of a given type are netted at market value. The alternative would allow the liquidator to choose which contracts to enforce and which not to (and thus potentially "cherry pick").
netting by novation: The legal obligations of the parties to make required payments under one or more series of related transactions are cancelled and a new obligation to make only the net payments is created.
settlement or payment netting: For cash settled trades, this can be applied either bilaterally or multilaterally and on related or unrelated transactions.