Derivatives | S
A practice whereby an intermediary enters into one side of the swap transaction, such as fixed rate payer (or floating rate payer) to a client who wishes to be a floating rate payer (or a fixed rate payer). Then the intermediary waits for a matching counterparty and offloads the swap thereto. In other words, swap positioning involves holding a portfolio of swaps usually by a swap dealer without seeking to offset each swap with an identical mirror swap. In this sense, the swap dealer becomes a counterparty to every swap held in its portfolio. The dealer earns, for its services as a dealer, a pay-receive spread (bid-ask spread) which is equal to the difference between the swap coupon the dealer pays and swap coupon the dealer receives.