Substitution vs Novation - What's the difference?
substitution | novation |
the act of substituting or the state of being substituted
a substitute or replacement
(chemistry) (especially in organic chemistry) the replacement of an atom, or group of atoms, in a compound, with another
(legal) Replacement of a contract with one or more new contracts, in particular in financial markets the replacement of a contract between a particular buyer and seller with contracts between the clearing house and each party.
* Netting by novation will occur immediately upon registration of the transaction in the SCM's name. — London Clearing House submission to the CFTC [http://www.cftc.gov/opa/press98/opa4163-98-att.htm]
(legal) A new contract between the original contracting parties whereby the first obligation is extinguished and a new obligation is substituted.
* An example of a novation is where an original debt which was payable in two instalments is novated to become payable in five installments.