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What Is “Novation” in the Context of a Clearing House?

The legal process where the clearing house becomes the central counterparty, replacing the original buyer and seller.
Greeks.Live22.11.25

What Is “Novation” in the Context of a Clearing House?

Novation is the legal process where the clearing house steps in between the original buyer and seller of a trade. It becomes the buyer to every seller and the seller to every buyer.

This process legally extinguishes the original bilateral contract and replaces it with two new contracts, one between the clearing house and the buyer, and one between the clearing house and the seller. Novation is the mechanism that centralizes risk and guarantees performance.

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What Is the Process of ‘Novation’ in the Context of a Clearing House?

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