Bank One Corporation - Page 194

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               Among dealers, it is common to refer to the spread reflected           
          in the pricing of a swap, and the convention is to quote the                
          fixed rate on the assumption that the floating rate is LIBOR flat           
          (i.e., with no spread or premium attached to the floating rate).            
          A swap, however, may be negotiated with the floating payment tied           
          to an index plus or minus a spread; i.e., a margin.                         
                         d.  Role in the Market                                       
               When the swaps market first began, every swap generally was            
          facilitated by a dealer.  The dealer was not a party to the                 
          transaction but, generally for a fee, arranged the swap by                  
          introducing the counterparties to each other and helping them to            
          effect the mechanics of the transaction.  With the evolution of             
          the market, dealers became parties to each swap.  In the early              
          years of the market’s evolution, a dealer would effect a swap               
          transaction by warehousing the swap (i.e., entering into the swap           
          without having entered into a matching swap but with the                    
          expectation of hedging the entered-into swap either through a               
          matching swap or a portfolio of swaps or temporarily in the cash,           
          securities, or futures market) until the dealer could arrange an            
          offsetting swap with another counterparty (i.e., match a book).             
          In the later years of the market’s evolution, the dealer would              
          simply accept a position opposite the counterparty without                  
          expecting to locate another counterparty transaction to match the           
          first transaction.                                                          






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Last modified: May 25, 2011