Novation

Replacing one contract with two. When a trade is cleared, each side faces the clearing house instead of the other, and neither original party is exposed to the other any more — the whole product a central counterparty sells.

Where Novation is explained in depth

The definition above is the short version. These pages put it to work, in the order they use it most:

• Exchanges & Clearing
• Clearing & Settlement
• The Words of Your First Week
• If you are building the system
• Futures vs. Forwards
• Credit Derivatives

Terms this definition uses

• Central counterparty (CCP)
• TERP

The whole glossary