2005 Novation Protocol

The 2005 Novation Protocol offers parties to the various Master Agreements published by ISDA an efficient means to agree to a uniform process by which consents to transfer of interests in Credit Derivative Transactions and Interest Rate Transactions (Covered Transactions as defined in the Protocol) may be obtained. The Protocol sets out a process by which the Transferor, the Transferee and the Remaining Party will communicate prior to or concurrent with a transfer by novation of a Covered Transaction and anticipates that the transfer must be requested and provided using one of the specified electronic means. The protocol clarifies that the effectiveness of the transfer between Transferor and Transferee is conditioned solely on receipt of the consent of the Remaining Party. In addition, the Protocol provides that if, by the end of the day on which the transfer is agreed, the consent of the Remaining Party is not received or the Remaining Party withholds its consent, the Transferor and the Transferee will instead book a new trade between them. Finally, parties who adhere to the protocol commit to exchange a novation confirmation confirming the details of the novated trade.

The goal of the protocol is to assist in remedying backlogs in confirmations due to novated trades. Difficulties in novations processing have been identified as a major cause for outstanding confirmations.