These Directions will govern novation, i.e. the substitution of one party in an over-the-counter (OTC) derivative contract with another, except in cases involving central counterparties or court-approved mergers. Key terms like ‘market-maker’, ‘transferor’, ‘transferee’, and ‘novation’ are defined, aligning with existing RBI master directions. The guidelines mandate that novation requires the remaining party’s consent, must occur at market rates, and should adhere to the applicable governing directions. A tripartite agreement is required between the transferor, transferee, and the remaining party to extinguish the original contract and create a new one with identical terms, except for the change in counterparty.
(Link: RBI Press Release Dated 09/07/2025, Draft Directions)