Novation Netting If the parties enter into a transaction which gives rise to an obligation for the same value date and in the same currency as an existing obligation, then the two obligations are cancelled and simultaneously replaced with a new obligation for the net amount. Under the master netting arrangement, the entity in the net asset position may require the other entity to post collateral according to a negotiated amount. On March 31, 20X8, A’s forward contract is a liability resulting from market movements in the price of corn. On that date, B requires A to post $500 of cash collateral. Similar to settlement netting, novation netting is only possible if the obligations have the same settlement date. This means that if, in the above example, transaction-2 was to be paid on Friday, the two transactions would not offset. Novation netting further cannot consolidate obligations.