Definition of swap dealer

Finance

What Is a Swap Dealer?

A switch dealer is an person or entity that serves as a swaps dealer, makes markets in swaps, or enters into swaps contracts with counterparties.

Swap supplier, as a felony time period, became formally described in the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, a piece of regulation born inside the aftermath of the choices 2007-2008 monetary crisis.

Understanding Swap Dealers

A swap is a type of derivative agreement wherein events alternate the choices cash flows or liabilities from a pair of different monetary devices. Most swaps involve coins flows primarily based on a notional fundamental quantity together with a mortgage or bond, although the instrument may be almost some thing. Usually, the choices fundamental does not alternate arms. Each coins waft incorporates one leg of the choices switch. One cash go with the flow is typically constant, at the same time as the other is variable and primarily based on a benchmark interest rate, floating currency trading price, or index rate.

The most not unusual kind of switch is an hobby price change. Swaps do no longer change on exchanges, and retail investors do not normally have interaction in swaps. Rather, swaps are over-the choices-counter (OTC) contracts usually among companies or economic institutions which might be customized to the desires of both events. Since these are OTC merchandise, they may be greater opaque than alternate-traded merchandise.

Prior to the choices monetary crisis, swaps had been largely unregulated, taking place mainly among companies and monetary establishments, in largely unregulated transactions. In 2011 the Securities and Exchange Commission (SEC) finalized proposals requiring security-primarily based swap dealers and individuals to check in with the fee, as part of the choices Dodd-Frank regulation.

The swap market is now overseen by way of the SEC and the choices Commodity Futures Trading Commission (CFTC).

According to Section 721 of the Dodd-Frank Act, a switch supplier is an entity that:

De Minimus Exception

The Republican-led administration took steps in 2017 to repeal the choices Dodd-Frank Act. The regulation is complete, pertaining to many factors of banking and finance. The definition of a change dealer isn’t always controversial, however there is one provision in the Dodd-Frank Act that Republicans sought to cope with—the choices de minimus exception rule. This rule exempts change supplier designation of an entity that engages in de minimus quantity of change dealing in connection with transactions with or on behalf of its clients.

The threshold for mixture gross notional amount (AGNA) that a swap provider should have finished has been set to $8 billion, as of November 2018. It changed into purported to fall to $3 billion, a far decrease stage that could have introduced many extra entities into the realm of regulatory oversight. However, the choices CFTC voted on a bipartisan foundation to set $eight billion as the everlasting threshold in a November 2018 meeting. The federal corporation referred to the choices elevated regulatory coverage for $8 billion as well as the choices ability for decrease liquidity at a decrease threshold determine for nonfinancial commodity swaps. In addition, the choices organization stated that it desired to signal lengthy-time period balance of the choices de minimus threshold to permit market members to plot for the choices long term.

Commodity Futures Trading Commission. “Dodd-Frank Act.” Accessed March sixteen, 2021.

Commodity Futures Trading Commission. “Commission Adopts Permanent $8 Billion De Minimis Exception to the Swap Dealer Definition.” Accessed March sixteen, 2021.

U.S. Securities and Exchange Commission. “Definitions Contained in Title VII of Dodd-Frank Wall Street Reform and Consumer Protection Act,” Pages 15-16. Accessed March 16, 2021.

U.S. Securities and Exchange Commission. “SEC Proposes Rules for Registration of Securities-Based Swap Dealers and Major Security-Based Swap Participants.” Accessed March sixteen, 2021.

U.S. Securities and Exchange Commission. “Definitions Contained in Title VII of Dodd-Frank Wall Street Reform and Consumer Protection Act,” Pages 15-sixteen. Accessed March sixteen, 2021.

U.S. Securities and Exchange Commission. “SEC Proposes Rules for Registration of Securities-Based Swap Dealers and Major Security-Based Swap Participants.” Accessed March sixteen, 2021.

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