Swap Dealer

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DEFINITION of 'Swap Dealer'

An individual who acts as the counterparty in a swap agreement for a fee called a spread. Swap dealers are the market makers for the swap market. The spread represents the difference between the wholesale price for trades and the retail price. Because swap arrangements aren't actively traded, swap dealers allow brokers to standardize swap contracts to some extent.

INVESTOPEDIA EXPLAINS 'Swap Dealer'

Historically, swaps have been traded in the over-the-counter market, mainly between firms and financial institutions, in largely unregulated transactions. In 2011, the SEC proposed requiring security-based swap dealers and participants to register with the commission, as part of the Dodd-Frank Wall Street Reform and Consumer Protection Act. The swap market would be overseen by the SEC and the CFTC. Swap dealers would have to change their business models and more trades would occur via exchange-like mechanisms. The Wall Street Journal stated that the proposed regulations would increase competition among swap dealers and decrease their profits, increase market liquidity and make trading more efficient for customers.

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RELATED FAQS
  1. How are swap agreements financed?

    Since swap agreements involve the exchange of future cash flows and are initially set at zero, there is no real financing ... Read Full Answer >>
  2. What is the theory of asymmetric information in economics?

    The theory of asymmetric information was developed in the 1970s and 1980s as a plausible explanation for common phenomena ... Read Full Answer >>
  3. How does market risk differ from specific risk?

    Market risk and specific risk are two different forms of risk that affect assets. All investment assets can be separated ... Read Full Answer >>
  4. What are the risks involved with swaps?

    The main risks associated with interest rate swaps, which are the most common type of swap, are interest rate risk and counterparty ... Read Full Answer >>
  5. How is perpetuity used in the Dividend Discount Model?

    The basic dividend discount model (DDM) creates an estimate of the constant growth rate, in perpetuity, expected for dividends ... Read Full Answer >>
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