According to invstopedia, the word novation stands for passing obligation in a contract from one party another.
http://www.investopedia.com/terms/n/novation.asp#axzz1oDl7ljZ5
A naive case is suppose Alex give John a TV, and John give the same TV to Peter, the two contract can be replaced by one contract, where Alex give the TV to Peter.
In our organization, principal business (EMA) novated their trades to agency business, i.e., in the contract with clients, agency desk stands for our organisation, instead of principal desk. With the term of Novation Trades in our cash business, we implicitly refer to the case that principal desk (EMA) novates their DR trades to agency desk.
Example:
SG EMA desk has relationship with US client, novates business to MSUS to buy GDR for client, settle in ECL.
The principal trade:
Client <-- SG EMA <-- Inventory
The novated model:
Client <-- MSUS <-- SG EMA <-- Inventory
From the point of agency business (to which our settlement system provide service), we book the below trades:
Here MSSG agency desk represent the EMA desk located in Singapore.
We can use the MSSG agency desk, since the SG EMA desk share the same custodian and cash account as MSSG agency.
Note:
Not that SG EMA novated business to MSSG, it novated the business to MSUS agency desk.
MSSG appears in the chain, just because it has the same SSI of SG EMA.