Swap

This Issue in United States

Concept of Swap in Futures Trading

In this context of financial law, the following is a definition of Swap: The statutory definition of “swap” is detailed and comprehensive, though certain agreements, contracts, and transactions are excluded from the definition. It includes, for example, interest rate swaps, commodity swaps, currency swaps, equity swaps and credit default swaps. Congress directed both the Commission and the Securities and Exchange Commission to further define the term “swap” (and security-based swap) jointly. The Commissions in 2012 adopted rules and interpretations to clarify that a few types of transactions in particular are swaps. These include foreign currency options, commodity options, non-deliverable forwards in foreign exchange, cross-currency swaps, forward rate agreements, contracts for differences, options to enter into swaps and forward swaps. See 7 U.S.C. §1a(47) and 17 C.F.R. 1.3.

Pay as You go Swap (paug)

Concept of Pay as You go Swap (paug) in the context of derivatives contract, by the International Swaps and Derivatives Association (ISDA): A credit default swap (a contract designed to transfer the credit exposure of debt obligation between parties) transaction on an underlying ABS or RMBS transaction. The seller compensates the buyer over the life of the transaction for any cash flow deficiencies for example interest shortfalls, principal shortfalls or writedowns. PAUG is cash flow driven as opposed to single event driven as in corporate credit derivative. Calculations and determinations are made based on the servicer report.

Resources

See Also

• Derivatives Contract

Swap

Concept of Swap in the context of derivatives contract, by the International Swaps and Derivatives Association (ISDA): A derivative (i.e. an instrument that transfers risk from one party to the other) where two counterparties exchange streams of cashflows with each other. These streams are known as the legs of the swap and are calculated by reference to a notional amount.

Resources

See Also

• Derivatives Contract

Quanto Swap/differential Swap

Concept of Quanto Swap/differential Swap in the context of derivatives contract, by the International Swaps and Derivatives Association (ISDA): An interest rate swap (i.e. an agreement to exchange interest rate cash flows) where one of the floating rates is a foreign interest rate, but it is applied to a notional amount in the domestic currency.

Resources

See Also

• Derivatives Contract