Novation, in the trading business, is the process in which a bilaterally-negotiated over-the-counter transaction is moved onto a clearing service, which acts as a buyer to every seller and as seller to every buyer. Reports are then automatically and electronically transmitted to the participant firms' computer systems. Transfer of ownership is conditioned on the simultaneous transfer of sufficient funds to pay in full for the instrument.
On April 5, 2012, the Securities and Exchange Commission published a final rulemaking that exempted clearing agencies from the requirements of the Securities Exchange Act when performing novation services for parties to a security-based swap transaction. For more information, see the final rule page in MarketsReformWiki.
- Exemptions for Security-Based Swaps Issued by Certain Clearing Agencies. Securities and Exchange Commission.