The Novation Consent service automates the request, approval and notification procedures among the three parties involved in an OTC credit derivative contract assignment, as stipulated by the International Swaps and Derivatives Association (ISDA®) in its Novation ProtocolSM.
The Novation Consent service automates the request, approval and notification procedures among the three parties involved in an OTC credit derivative contract assignment, as stipulated by the International Swaps and Derivatives Association (ISDA®) in its Novation ProtocolSM. Traditionally, these procedures have been carried out via three-way email communications, a manual, error-prone process not suitable for a high-volume market.
Novation Consent allows participants to electronically request and obtain the approvals required by the ISDA protocol when one party to a transaction seeks to assign, or novate, its obligation to a new firm. The service streamlines assignment processing by allowing firms to consolidate consents, retrieve trade data from The Depository Trust & Clearing Corporation's (DTCC's) Trade Information Warehouse, then potentially submit an assignment to DS Match.
Specific instruments that are covered by the Novation Consent service include all credit products currently supported by DS Match and the Trade Information Warehouse: single-reference-entity credit default swaps (CDS)--including corporates, sovereigns, loans, asset-backed and mortgage-backed instruments--indices and tranches.
Dealers and buy-side firms can use Novation Consent.
MarkitSERV's Novation Consent service automates the contract assignment procedures stipulated under ISDA's Novation Protocol.
When a party to an OTC derivative transaction wishes to exit that contract by assigning its position to a third party, the exiting party (Transferor), in accordance with the Novation Protocol, must notify the remaining counterparty (RP) and the entering party (Transferee) and seek permission for the assignment from the RP.
With Novation Consent, all three parties communicate electronically on a common platform using point and click technology or FpML-compliant messaging. The Transferor initiates the process by creating a pending novation. If the contract to be novated resides in DTCC's Trade Information Warehouse, the Warehouse can automatically search its database and identify a list of possible trades, and the Transferor selects the contract from the list. Alternatively, the Transferor can specify the trade reference identifier for the contract it is seeking to novate. Once the appropriate contract is identified, the Transferor specifies novation details, such as the names of the Remaining Party and Transferee, the novated contract amount, effective date, payment amount and payment date.
The Novation Consent platform then transmits the details electronically to the RP, which can accept or refuse the novation, and to the Transferee. The pending novation then moves to Approved or Refused status. If the novation is approved, the Transferor may request that the system autogenerate an assignment record to be submitted to DTCC's Trade Information Warehouse.
Separately, the RP and the Transferee submit their sides of the transaction to the Trade Information Warehouse. All three sides are then matched and confirmed by DS Match.
Novation Consent can also be used for contracts that do not reside in the Warehouse. In those cases, the system does not auto-generate assignment records for the Warehouse.
Customers can access the Novation Consent service through a variety of interfaces. Connection via direct computer-to-computer real-time messaging will be available to high-volume users. Lower-volume users can connect through a Web-browser interface. Internet connections are secured via a digital certificate issued by DTCC and a high security encryption connection.
MarkitSERV uses Financial products Markup Language (FpML) as its standard language. FpML is a trademark of the International Swaps and Derivatives Association.
Last updated November 16, 2009
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