Noun

1. 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
2. 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.