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Swap Novation

The creation of a new swap agreement, while simultaneously canceling the original or old one. This may take place if the terms of one contract are changed or amended- e.g. when a counterparty purchases or sells an option, or rolls a profit or loss from one transaction into an active swap. This process involves the substitution of another party for one of the original parties to the swap agreement. Also this occurs when a clearinghouse acts as a central counterparty and becomes a buyer to the original seller or a seller to the original buyer.

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