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What Is Novation in the Context of a CCP?

Legal process where the CCP replaces the original counterparties, extinguishing the old contract and creating two new ones, eliminating bilateral risk.
Greeks.Live23.11.25

What Is Novation in the Context of a CCP?

Novation is the legal process where the CCP steps in and becomes the new counterparty to both sides of a trade. The original contract between the two parties is extinguished and replaced by two new contracts: one between the CCP and the buyer, and one between the CCP and the seller.

This eliminates bilateral counterparty risk.

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