Swap Dealer

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.

BREAKING DOWN '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. What would motivate an entity to enter into a swap agreement?

    Learn why parties enter into swap agreements to hedge their risks, and understand how the different legs of a swap agreement ... Read Answer >>
  2. How are swap agreements financed?

    Learn how swap agreements are now cleared by swap execution facilities and require the use of collateral margin to hold, ... Read Answer >>
  3. When was the first swap agreement and why were swaps created?

    Learn about the history of swap agreements, the first swap agreement between IBM and the World Bank, and how swaps have evolved ... Read Answer >>
  4. What are the Securities and Exchange Commission regulations regarding swaps?

    Learn how the SEC regulates trading of swaps, and how swap trading is moving from an over-the-counter market to centralized ... Read Answer >>
  5. Can bond traders trade on interest rate swaps?

    Read about interest rate swaps and why these transactions are performed by institutional actors in the bond market, not individual ... Read Answer >>
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    Read about the risks associated with performing a currency swap, including counterparty credit risk in the event that one ... Read Answer >>
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