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ISDA Internal Novation Notice

On 9 February, ISDA published an "Internal Novation Notice" for use in "internal" novation of transaction within a same entity. The provisions set out in the notice can be used by any "document" e.g. recording an internal transfer by wording incorporating the notice and definitions used in the 2004 ISDA Novation Definitions and/or 2005 Novation Protocol.

The notice envisage three scenarios:

(a) where the "Transferor" and the "Remaining Party" are the same entity

(b) where the "Transferee" and the "Remaining Party" are the same entity

(c) where the "Transferor" and the "Transferee" are the same entity

In (a) a "New Transaction" will be deemed to be entered into between the Transferee and the Remaining Party (and the "Old Transaction" exists as between the Transferor and Remaining Party solely as an "internal booking matter").

In (b), the Old Transaction will be terminated between the Transferor and Remaining Party and of course, no New Transaction is created.

In (c), no effect of the Old Transaction (except any amendment) but the Transferor and Transferee may treat the Internal Novation as an "internal matter".

According to ISDA, the Internal Novation Notice is published "as a convenience to establish a convention for processing these arrangements" and users are reminded that the same should not be construed as saying that any form of documentation is legally required to effect what are essentially internal trade bookings.


Last updated February 2009


The above notes are intended to highlight issues and provide only general outlines and not intended to be comprehensive nor legal advice. Where applicable, the same should be read in conjunction with, and are qualified in their entirety by, the full provisions of the relevant ISDA provisions and definitions. They shall never be used in place of professional advice. We accept no responsibility for any loss arising from any action taken or not taken by anyone using this material or using this material in conjunction with any ISDA documentation in reliance thereof. If you have any question, please contact us.

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