This term is also used in markets where there is no centralized clearing system, such as swap trading. B and some OTC derivatives, in which “Novation” refers to the process in which one party can delegate its role to another party called “entering the contract.” This corresponds to the sale of a future contract. In the event of a renovation of the contract, the other contractor (original) must be kept in the same position as before the renovation. Innovation therefore requires the agreement of all three parties. While it is easy to get the agreement of the ceding and the ceding, it can be more difficult to get the agreement of the other original party: transactions of companies such as mergers and acquisitions often involve the renewal of a large number of contracts. For example: you borrow from a lender and want to transfer the debts later to someone else (perhaps a friend, business partner or buyer of your business) so that they can repay the lender instead of you. In this situation, you should use an agreement that novats the debt. To continue with our example, instead of the money you owe, Monica may agree to accept a coin from Sally`s original work that is worth approximately $200. The transfer of ownership constitutes a renewal and effectively exceeds the original cash commitment. Novation is also used in futures and options trading to describe a particular situation in which the central clearing house between buyers and sellers presents itself as a legal counterpart, i.e.
the clearing house becomes a buyer for each seller and vice versa. The result is the need to determine the creditworthiness of each counterparty and the only credit risk to which participants are exposed is the risk of default by the clearing house. In this context, innovation is seen as a form of risk management. There are three ways to make an innovation, and each one is different. In addition, the parties agree to compensate one party, it is a legal agreement to make another party innocent – not responsible – of any loss or damage. losses incurred by the other party`s actions. The arriving party undertakes, for example, to compensate the original party for the losses incurred by the acts of the original party.