Swaps

Swaps are financial derivatives that involve a privately negotiated agreement between two parties to exchange cash flows over specified payment dates. The swaps market encompasses various types, including interest rate swaps, bond swaps, and tax rate swaps, which serve to manage financial risks associated with investments. Interest rate swaps, for instance, emerged in the early 1980s and allow parties to exchange cash flows based on different interest rates without exchanging the principal amount, known as notional principal.

Bond swaps occur when investors sell one bond to purchase another, often to improve their investment portfolio or adapt to changing economic conditions, while municipal bonds, commonly used by local governments, are influenced by tax laws and provide benefits such as tax-exempt interest. Regulatory bodies like the Municipal Securities Rulemaking Board (MSRB) oversee the swaps market, aiming to ensure fair practices and protect investors, especially in light of the challenges highlighted by the 2008-2009 economic crisis.

The swaps market plays a vital role in the broader financial landscape, enabling organizations to manage risks effectively and contribute to economic growth, although it also requires careful scrutiny to navigate the complexities and potential pitfalls associated with derivative trading.

Published in: 2021

By: Erbschloe, Michael

Subject Terms

Swaps

This article examines the swaps market including tax rate swaps, bond swaps, and other derivatives swaps. The origin of swaps is reviewed along with the various uses of securities swaps. The organizations involved in regulating and prompting swaps and the various roles they fulfill are explained. The applications and results of bond swaps are also reviewed along with examples of the types of organizations that have used bond swaps and the motivations behind these practices. Issues with regulating swaps and managing the swaps outcome for investors in light of the 2008-2009 economic crisis are also reviewed.

Keywords: 2008-2009 Economic Crisis; Bond Swaps; Derivatives; Financial Securities; Interest Rate Swaps; Municipal Bonds

Overview

In 2009 a survey conducted by the International Swaps and Derivatives Association (ISDA), found that 94 percent of the largest 500 companies in the world are using derivative instruments to manage and hedge their business and financial risks ("Over 94%," 2009). In addition, a large number of American companies use exchange-traded and over-the-counter derivatives to manage various risks. A review of derivatives use reported by the Dow Jones Industrial Average companies shows all 30 of the companies reported using interest-rate and exchange-rate derivatives while 23 of the 30 companies stated they used commodities derivatives and 21 companies mentioned their use of other derivatives ("Use of OTC Derivatives," 2009).

The value of derivatives, which include forward contracts, futures, and options, are determined by the value and the risk related to their underlying assets, which could include stocks, bonds, and even mortgages. The derivatives market, or swaps market, began in 1976 and by 2007 the notational value of the market was over three hundred trillion dollars (Hodgson, 2009). A swap is a privately negotiated agreement between two parties to exchange cash flows at specified payment dates during the agreed-upon life of the contract.

Interest Rate Swaps

An interest rate swap is an agreement to exchange interest rate cash flows, calculated on a notional principal amount, at specified payment dates ("Product Descriptions," 2009). Interest rate swaps first appeared in 1981, and very quickly they became widely used (Stewart & Trussel, 2006). In an interest rate swap each party's payment obligation is computed using a different interest rate and the notional principal is never exchanged ("Product Descriptions," 2009). The principal in an interest rate swap is called notational because it is the basis for calculating the interest and the principal is not exchanged at the end of the agreement. Thus, the principal is not at risk (Brown & Smith, 1993).

A "plain vanilla" swap typically refers to a generic interest rate swap in which one party pays a fixed rate and one party pays a floating rate. The London Interbank-Offered Rate LIBOR), the interest rate paid on interbank deposits in international money markets, is commonly used as a benchmark for short-term interest rates and as the floating rate on an interest rate swap ("Product Descriptions," 2009). Most swap market makers tend to be either commercial or investment banks (Brown & Smith, 1993).

Interest rate swaps generally have periodic review dates written into the agreement and often at the time of review, if the fixed rate exceeds the floating rate, then the party with the fixed rate of interest pays the other party the difference between the two rates. The payment may be calculated by the rate being multiplied by the notional amount for the specified interval of time that has passed. If, on the other hand, the floating rate exceeds the fixed rate, the party with the floating rate pays the other party the difference (Curley & Fella, 2009).

In the contemporary mortgage market mortgages are often connected to asset-backed securities. This securitization process uses the expected future payments from mortgages to support the value of securities that are sold to investors. These investors then have the right to portions of those future payments. The investor then assumes a portion of the risk that borrowers will not pay the mortgages and may default on loans (Gerding, 2009). In the case of mortgages backed by derivatives, any fluctuation in the expected cash flow stream of payments by borrowers can impact the profitability of the securities. Massive failure to repay home loans (as seen in 2008-2009) will of course affect the value of the securities. However, early repayment or refinancing of home loans at lower rates than what were being paid when the securities were issued can also negatively impact the future derived cash stream (Cortes, 2006).

Credit Rating Agencies (CRAs) are companies that grade securities and apply a credit rating based on an assessment based on the likelihood that a debt will be repaid. In the 1960s, CRAs started charging fees to debt issuers for rating their securities. The three largest CRAs are Standard & Poor's (S&P), Moody's Investors Service, and Fitch. Rating credit is an inherently subjective process which requires sound professional judgment. Credit rating professionals rely on vast amounts of quantitative and qualitative data. But a credit rating is only as sound as the research that goes into the rating and the qualifications and integrity of the raters (Coffee, 2009; Rom, 2009).

Bond Swaps

Investors swap bonds by selling one bond or set of bonds and buying another bond or set of bonds with the proceeds of the sale. Bond swapping can help investors improve the quality of their investment portfolio and potentially increase their total return on investment. As economic conditions change, investors may be able to obtain a higher rate of interest on the bonds they hold and change their tax liability when tax laws change. Bond issuers swap bonds as a process of issuing a new bond designed to replace an existing outstanding bond. The results of the swap can change the long term debt position of the issuer and in many cases also provide favorable terms for the investors (Kruger, 2000; "Bond Swapping," 2004).

Municipal Bonds

Since the 1970s local governments have relied on bonds to finance capital building projects including roads, schools, government buildings, and other urban economic development projects. During these 40 years the municipal bond market has grown in value to over $2 trillion. In 1982, Congress passed laws that required that municipal bonds be issued in a registered form in order to retain their tax-exempt status (Hildreth & Zorn, 2005).

Municipal bonds generally pay a specified amount of interest (usually semiannually) and return the principal to the investor on a specific maturity date. One key reason individual investors buy municipal bonds is the tax benefits; interest on the vast majority of municipal bonds is free of federal income tax, and if an investor lives in the state or city issuing the bond, they may also be exempt from state or city taxes on their interest income.

There are two common types of municipal bonds:

General Obligation Bonds
Revenue Bonds

General Obligation Bonds are issued by states, cities or counties which are backed by the full faith and credit of the government entity issuing the bonds. Revenue Bonds are backed solely by fees or other revenue generated or collected by a specific facility such as a toll bridge or road. Revenue bonds are not, however, backed by the full faith and credit of the government entity issuing the bonds. The creditworthiness of revenue bonds is determined by and depends on the financial success of the specific project they are issued to fund. Very few municipal bonds have gone into default, but defaults certainly can occur. Defaults tend to be higher for Revenue bonds than for General Obligation bonds, especially those that are used to fund private-use projects such as nursing homes, hospitals or toll roads ("Municipal Bonds," 2009).

Regulation of Municipal Bonds

The Municipal Securities Rulemaking Board (MSRB) makes rules regulating dealers who trade in municipal bonds, municipal notes, and other municipal securities ("Welcome to the MSRB," 2009). The MSRB was established by the United States Congress in 1975 to develop rules for regulating securities firms and banks involved in underwriting, trading, and selling municipal securities. The Board is composed of members from the municipal securities dealer community and the public and is subject to oversight by the Securities and Exchange Commission (SEC). The Board sets rules for:

Professional qualification standards;
Fair practice;
Recordkeeping;
Confirmation, clearance, and settlement of transactions;
The scope and frequency of compliance examinations; and
The nature of securities quotations ("About the MSRB," 2009).

Activities of securities dealers that sell municipal bonds are also subject to the rules set by the Financial Industry Regulatory Authority (FINRA) which mounted a comprehensive analysis of retail sales practices in the municipal securities market and has worked to promote investor protection. FINRA has also examined potential conflicts of interest, disclosure practices, and marketing methods of firms underwriting municipal securities involving swaps and derivatives ("FINRA Takes," 2009).

Reasons for Bond Swaps

Bond swaps occur for a variety of reasons. Issuing organizations including national governments, municipal and state governments as well as private issuers have a long history of bond swaps.

Home finance companies, especially those in the subprime loan market have needed to recapitalize and raise funds to pay existing note holders and to have funds to support the lending process. Bond swaps have helped such companies stay solvent during downturns (Hochstein, 1999). In other cases lending companies have made swaps in order to raise capital to expanding into new markets ("HKMC," 2000).

States, municipal governments, and specialized public organizations such as a turnpike authority have relied on bond swaps to control interest payments and consolidate previous bond issues into new bonds (Braun, 2003; Albanese, 2004; "BAA's," 2008). In addition, several national governments have also relied on bond swaps to control national debt, bolster currency, or improve their credit rating ("Bulgaria," 2002; "Lebanon," 2003; "Dominican Republic," 2005; " Philippines," 2006; "Uruguay," 2008).

International Organizations in the Derivatives Arena

The International Swaps and Derivatives Association (ISDA) represents participants in the privately negotiated derivatives industry. Founded in 1985, the ISDA has over 800 member institutions from 58 countries. The ISDA has worked to identify and reduce the sources of risk in the derivatives and risk management business and has developed the ISDA Master Agreement. The Master Agreement provides a framework for transactions in the over the counter (OTC) derivatives markets ("About ISDA," 2009).

The Securities Industry and Financial Markets Association (SIFMA) represents the interests of participants in the global financial markets on regulatory and legislative issues. Members include international securities firms, registered broker-dealers in the United States as well as asset managers ("The SIFMA Organization," 2009). SIFMA has supported the creation a central authority with oversight in all markets and of all systemically important market participants, the use of clearing houses for standardized transactions, and reporting through data repositories for all other OTC derivative transactions ("Over-the-Counter Derivatives," 2009).

The London Investment Banking Association (LIBA) is the primary trade association in the United Kingdom for companies and organizations that are involved in investment banking and wholesale securities. LIBA works with other trade associations that represent other aspects of the financial services industry, especially on issues that affect all of the participants and where joint activity is an efficient and effective use of resources ("About LIBA," 2009). LIBA is currently addressing issues of accounting, compliance, electronic commerce, financial regulation, and financial crime ("Current Issues," 2009).

Further Insights

Risk Management & Analysts' Responsibilities

Financial securities provide a means for individuals, investment banks, mutual funds, or retirement funds to invest money and to grow the value of their funds. Securities facilitate the process of attracting investors by providing an investment mechanism that is openly and publicly scrutinized by securities analysts and other investors. As the economic downturn of 2008 went from being a downturn to a near catastrophe it was apparent that the scrutiny of securities was not as rigid and comprehensive as it should have been (Bagtas, 2008). There is no doubt that many investment strategies were weak and that many investment analyses were wrong. Much of the economic analyses provided by industry analysts may have been compelling at one point but it became obvious that there was a lack of accuracy and perhaps even a lack of integrity (Savage & Gregory, 2007).

The complexity of global markets, technology innovation, economic interconnectedness and the volume of information necessary to analyze investment alternatives and make investment decisions have all increased over the last twenty years. The interrelationships between all of these aspects sometimes make it difficult to determine the impact that potential changes will have on investment strategies (Freeman, 2009; Freda, Arn, & Gatlin-Watts, 1999).

Recently, the financial industry's computer-based risk models have enabled financial institutions and securities firms to bring more complex derivatives products to investors. However, during the 2008-2009 economic downturn the massive failure of these models led to huge losses for investors and raised questions about how these products were being regulated (Coffee, 2009; Gerding, 2009).

The reliance on computer-supported analytical models used by many analysts quickly became criticized as the economic crisis worsened. Many of the analysts that were using the models and the firms they worked for also faced massive criticism. Many investors and observers contended that there were errors in the assumptions on which the models were built (Segerstrom, 2009). As a result of the heightened controversy, swaps and derivatives in general have come under scrutiny on many fronts. The state government of Massachusetts, for example, is considering limiting the use of swaps by bonding authorities in the state including the Massachusetts Turnpike Authority (Kaske, 2009).

The Sarbanes-Oxley Act

When Enron and WorldCom collapsed, several investment funds and the retirement funds of thousands of individuals lost value. Participants in retirement funds were outraged and angry with the people managing their retirement funds (Minow & Hodgson, 2007). One of many issues surrounding the massive financial collapses of Enron and WorldCom was the accuracy and reliability of internal audits. These audits are provided to the board of directors and the stockholders as accurate depictions of the financial health and condition of a publicly traded company. Reports are also filed with the SEC as a matter of public record.

The Sarbanes-Oxley Act of 2002 was a significant step in the regulation of publicly traded companies and was intended to help protect investors by requiring more stringent controls on corporate financial reporting and disclosures. The act established the Public Company Accounting Oversight Board (PCAOB) as a private-sector non-profit organization that is charged with overseeing the audits of public traded companies. These companies are regulated by numerous securities laws and are required to file periodic reports with the SEC.

The Sarbanes-Oxley Act addressed the reliability and independence of audits and required that any and all documentation regarding financial statements be preserved. The act also holds executive officers and boards of directors more accountable for the accuracy of financial reports and prescribes rather severe criminal penalties for false or misleading reports (Shear, 2006).

Enterprise Risk Management

Enterprise Risk Management (ERM) analytical models are designed to encompass both external and internal risks which include all of the investment mechanisms that a financial investment firm, bank, or other company holds (Muzzy, 2008). To perform a comprehensive and in-depth risk analysis of investments requires obtaining data from numerous sources as well as testing the integrity and accuracy of that data (Vlasenko & Kozlov, 2009). ERM enables corporate executives to aggregate, prioritize, and effectively manage risks while enabling business-unit managers to improve decision making in operations and product management (Kocourek & Newfrock, 2006).

The 2008 economic downturn caught many corporate executives working with analytical models that assumed that the housing market would not decline so drastically or on such a widespread basis (Korolov, 2009). Although it was clear that most risk managers had also not previously seen the convergence of negative economic trends occur so quickly or across so many sectors simultaneously, it became clear that the assumptions about risk and the analytical models to analyze risk had not undergone stringent enough testing. (Morgan, 2009). As a result of the many errors in risk analysis prior to the 2008-2009 economic crisis investment advisors, institutional investors, and credit rating agencies are adding to the pressure for companies to develop ERM systems and disclose their risks (Karlin, 2007).

Conclusion

The swaps market has many facets, with various financial securities that can be swapped including bonds, futures, options, and interest rate agreements. Each of these financial securities is a world in and of itself. Investors rely on financial advisors to help guide their investment decisions which means that financial advisors either must be well versed in a variety of securities or specialize in a particular area.

The complexities of the swap market combined with the interrelationships of a wide arena of swappable securities, all in an interconnected global economy means that laws, regulations, practices, and ethics need to address how the performance of one market or one security can impact other markets or other securities. Financial securities provide both a means of creating and maintaining wealth as well as making capital available to organizations that can contribute to economic growth.

Be it the dotcom boom and bust of the 1990s, or the real estate market crash of the new millennium, it is clear that investors need to be cautious of their decisions and perhaps even more cautious of the advice they take or leave from the battalions of financial advisors that are eager to serve them.

Terms & Concepts

Derivative: A financial investment product, whose value is derived from an underlying security and can include interest rate swaps, caps, as well as many other types of variable rate investment mechanism.

Enterprise Risk Management: A data intensive process that measures all of a company's risks including financial risks, investment oriented risks, operations based risks, and market risks, as well as legal and regulatory risks for all of the locations which a company operates or invests (Peterson, 2006).

Futures: An arrangement in which two parties agree to buy and sell the value of a security or a commodity at an agreed upon date or period in the future.

London Inter-Bank Offered Rate (LIBOR): A benchmark interest rate upon which many transactions are based and obligations of parties to such transactions are typically expressed as a spread to LIBOR ("Glossary of Municipal Securities Terms," 2009).

Options: An agreement in which two parties agree to buy and sell a security or a commodity at an agreed upon price at an agreed upon date or period in the future.

Swaps: A sale of a security and the simultaneous purchase of another security for purposes of enhancing the investor's holdings. The swap may be used to achieve desired tax results, to gain income or principal, or to alter various features of a bond portfolio ("Glossary of Municipal Securities Terms," 2009).

Bibliography

About ISDA. (2009). The International Swaps and Derivatives Association. Accessed September 1, 2009. http://www.isda.org/index.html

About LIBA. (2009). The London Investment Banking Association. Accessed September 1, 2009. http://www.liba.org.uk/

About the MSRB. (2009). The Municipal Securities Rulemaking Board. Accessed September 7, 2009. http://www.msrb.org/msrb1/whatsnew/default.asp

Albanese, E. (2004). Colorado RTD Waiting for the right time to swap $132M. Bond Buyer, 347(31794), 28-28. Retrieved September 6, 2009, from EBSCO online database, Business Source Premier. http://search.ebscohost.com/login.aspx?direct=true&db=buh&AN=11854905&site=ehost-live

BAA's bond swap is cleared for take-off as ABI signs on. (2008, July 18). Euroweek, (Issue 1063). 50. Retrieved September 6, 2009, from EBSCO online database, Business Source Premier. http://search.ebscohost.com/login.aspx?direct=true&db=buh&AN=34638815&site=ehost-live

Bagtas, M. (2008). Who's to blame for the U.S. subprime mortgage meltdown? Ateneo Law Journal, 53, 844-853. Retrieved September 2, 2009, from EBSCO online database, Academic Search Complete http://search.ebscohost.com/login.aspx?direct=true&db=a9h&AN=43097053&site=ehost-live

Barlas, S. (2013). Cross-border swaps proposals worry business groups. Strategic Finance, 95, 23. Retrieved November 15, 2013, from EBSCO Online Database Business Source Complete. http://search.ebscohost.com/login.aspx?direct=true&db=bth&AN=90612622&site=ehost-live

Bond Swapping an investor's guide: Techniques to lower your taxes and improve the quality of your portfolio. (2004). Retrieved September 1, 2009, from The Securities Industry and Financial Markets. http://www.sifma.org/services/publications/pdf/BondSwapping1004.pdf

Braun, M. (2003). N.J. treasurer says state may utilize school-bond swaps for other projects. Bond Buyer, 344(31637), 5. Retrieved September 6, 2009, from EBSCO online database, Business Source Premier. http://search.ebscohost.com/login.aspx?direct=true&db=buh&AN=9893107&site=ehost-live

Brown, K., & Smith, D. (1993). Default risk and innovations in the design of interest rate swaps. FM: The Journal of the Financial Management Association, 22, 94. Retrieved September 3, 2009, from EBSCO online database, Business Source Premier. http://search.ebscohost.com/login.aspx?direct=true&db=buh&AN=9403082325&site=ehost-live

Bulgaria completes $759m second Brady swap via JP Morgan and Citi, saving $242m. (2002, September 27). Euroweek, (Issue 772). 16. Retrieved September 6, 2009, from EBSCO online database, Business Source Premier. http://search.ebscohost.com/login.aspx?direct=true&db=buh&AN=7538687&site=ehost-live

Chernenko, S., & Faulkender, M. (2011). The two sides of derivatives usage: hedging and speculating with interest rate swaps. Journal of Financial & Quantitative Analysis, 46, 1727-1754.Retrieved November 15, 2013, from EBSCO Online Database Business Source Complete. http://search.ebscohost.com/login.aspx?direct=true&db=bth&AN=71818599&site=ehost-live

Coffee Jr, J. (2009). What went wrong? An initial inquiry into the causes of the 2008 financial crisis. Journal of Corporate Law Studies, 9, 1-22. Retrieved September 2, 2009, from EBSCO online database, Academic Search Complete. http://search.ebscohost.com/login.aspx?direct=true&db=a9h&AN=38606869&site=ehost-live

Cortes, F. (2006). Understanding the term structure of swap spreads. Bank of England Quarterly Bulletin, 46, 45-56. Retrieved August 31, 2009, from EBSCO online database, Business Source Premier. http://search.ebscohost.com/login.aspx?direct=true&db=buh&AN=20227743&site=ehost-live

Curley, S., & Fella, E. (2009). Where to hide? How valuation of derivatives haunts the courts — even after BAPCPA. American Bankruptcy Law Journal, 83, 297-323. Retrieved September 1, 2009, from EBSCO online database, Business Source Premier. http://search.ebscohost.com/login.aspx?direct=true&db=buh&AN=42833751&site=ehost-live

Current Issues. (2009). The London Investment Banking Association. Accessed September 1, 2009 http://www.liba.org.uk/Dominican Republic offers bond swap without haircut. (2005, April 22). Euroweek, (Issue 900). 26-26. Retrieved September 6, 2009, from EBSCO online database, Business Source Premier. http://search.ebscohost.com/login.aspx?direct=true&db=buh&AN=17016414&site=ehost-live

FINRA takes sweeping action to protect muni bond investors. (2009). The Financial Industry Regulatory Authority. Accessed September 7, 2009. http://www.finra.org/Newsroom/NewsReleases/2009/P119064

Freda, G., Arn, J., & Gatlin-Watts, R. (1999). Adapting to the speed of change. Industrial Management, 41, 31. Retrieved September 2, 2009, from EBSCO online database, Business Source Premier. http://search.ebscohost.com/login.aspx?direct=true&db=bth&AN=2772106&site=ehost-live

Freeman, L. (2009). Who's guarding the gate? Credit-rating agency liability as control person in the subprime credit crisis. Vermont Law Review, 33, 585-619. Retrieved September 2, 2009, from EBSCO online database, Academic Search Complete. http://search.ebscohost.com/login.aspx?direct=true&db=a9h&AN=43308037&site=ehost-live

Gerding, E. (2009). Code, crash, and open source: The outsourcing of financial regulation to risk models and the global financial crisis. Washington Law Review, 84, 127-198. Retrieved September 1, 2009, from EBSCO online database, Academic Search Complete. http://search.ebscohost.com/login.aspx?direct=true&db=a9h&AN=43248135&site=ehost-live

Glossary of Municipal Securities Terms. (2009). The Municipal Securities Rulemaking Board. Accessed September 7, 2009. http://www.msrb.org/msrb1/glossary/glossary%5fdb.asp?sel=s

HKMC in mortgage/bond swap. (2000, June 2). Euroweek, Issue 655, 8-8. Retrieved September 6, 2009, from EBSCO online database, Business Source Premier. http://search.ebscohost.com/login.aspx?direct=true&db=buh&AN=3202248&site=ehost-live

Hildreth, W., & Zorn, C. (2005, December 2). The evolution of the state and local government municipal debt market over the past quarter century. Public Budgeting & Finance, 25, 127-153. Retrieved September 7, 2009, from EBSCO online database, Business Source Premier. http://search.ebscohost.com/login.aspx?direct=true&db=buh&AN=18943868&site=ehost-live

Hochstein, M. (1999). Ga. lender, facing default, plans to offer a bond swap. American Banker, 164, 6. Retrieved September 6, 2009, from EBSCO online database, Business Source Premier. http://search.ebscohost.com/login.aspx?direct=true&db=buh&AN=2636371&site=ehost-live

Hodgson, R. (2009). The birth of the swap. Financial Analysts Journal, 65, 1-4. Retrieved September 1, 2009, from EBSCO online database, Business Source Premier. http://search.ebscohost.com/login.aspx?direct=true&db=buh&AN=38703192&site=ehost-live

Karlin, B. (2007). Sweating out the ERMs. Treasury & Risk, (Dec/Jan), 15. Retrieved September 2, 2009, from EBSCO online database, Business Source Premier. http://search.ebscohost.com/login.aspx?direct=true&db=buh&AN=28144191&site=ehost-live

Kaske, M. (2009). Massachusetts mulls curbs on swaps. (cover story). Bond Buyer, 369(33155), 1-4. Retrieved August 31, 2009, from EBSCO online database, Business Source Premier. http://search.ebscohost.com/login.aspx?direct=true&db=buh&AN=43515641&site=ehost-live

Kocourek, P., & Newfrock, J. (2006). Are boards worrying about the wrong risks? Corporate Board, 27, 6-11. Retrieved September 3, 2009, from EBSCO online database, Business Source Premier. http://search.ebscohost.com/login.aspx?direct=true&db=buh&AN=19887261&site=ehost-live

Korolov, M. (2009). Enterprise risk management: Getting holistic. (cover story). Securities Industry News, 21, 1-6. Retrieved September 2, 2009, from EBSCO online database, Business Source Premier. http://search.ebscohost.com/login.aspx?direct=true&db=buh&AN=43249547&site=ehost-live

Kruger, D. (2000). Bond Swap. Forbes, 166, 358-358. Retrieved September 6, 2009, from EBSCO online database, Academic Search Complete. http://search.ebscohost.com/login.aspx?direct=true&db=a9h&AN=3717090&site=ehost-live

Lebanon plans $1bn-$2bn bond swap to cut redemption hump in 2005-2006. (cover story). (2003). Euroweek, (Issue 829) 1-2. Retrieved September 6, 2009, from EBSCO online database, Business Source Premier. http://search.ebscohost.com/login.aspx?direct=true&db=buh&AN=11521327&site=ehost-live

Minow, N., & Hodgson, P. (2007). Shareholder activism and the eclipse of the public corporation. Corporate Board, 28, 1-5. Retrieved September 2, 2009, from EBSCO online database, Business Source Premier. http://search.ebscohost.com/login.aspx?direct=true&db=bth&AN=24876959&site=ehost-live

Morgan, J. (2009, May 27). Firms adjust to new world of risk. Investment Management Weekly, Retrieved September 2, 2009, from EBSCO online database, Business Source Premier. http://search.ebscohost.com/login.aspx?direct=true&db=buh&AN=40730215&site=ehost-live

Municipal Bonds — Staying on the safe side of the street in rough times. (2009). The Financial Industry Regulatory Authority. Accessed September 7, 2009. http://www.finra.org/Investors/ProtectYourself/InvestorAlerts/Bonds/P118 8923

Muzzy, L. (2008). Approaching Enterprise Risk Management. Financial Executive, 24, 59-61. Retrieved September 2, 2009, from EBSCO online database, Business Source Premier. http://search.ebscohost.com/login.aspx?direct=true&db=buh&AN=34736453&site=ehost-live

Over 94% of the world's largest companies use derivatives to help manage their risks, according to ISDA survey. (2009). The International Swaps and Derivatives Association. Accessed September 1, 2009. http://www.isda.org/press/press042309der.pdf

Over-the-counter derivatives, (2009). The Securities Industry and Financial Markets. Accessed September 1, 2009. http://www.sifma.org/legislative/OTC/otc-derivatives.aspx?ID=11824

Peterson, J. (2006). Ready for ERM. (cover story). ABA Banking Journal, 98, 19-23. Retrieved September 3, 2009, from EBSCO online database, Business Source Premier. http://search.ebscohost.com/login.aspx?direct=true&db=buh&AN=19357897&site=ehost-live

Philippines begins 10 year peso bond swap. (2006, August 18). Euroweek, (Issue 967, Special Section).1-6. Retrieved September 6, 2009, from EBSCO online database, Business Source Premier. http://search.ebscohost.com/login.aspx?direct=true&db=buh&AN=22354919&site=ehost-live

Product descriptions and Frequently Asked Questions. (2009). The International Swaps and Derivatives Association. Accessed September 1, 2009. http://www.isda.org/educat/faqs.html#2

Rom, M. (2009). The credit rating agencies and the subprime mess: Greedy, ignorant, and stressed? Public Administration Review, 69, 640-650. Retrieved September 2, 2009, from EBSCO online database, Business Source Premier. http://search.ebscohost.com/login.aspx?direct=true&db=buh&AN=42960191&site=ehost-live

Saretto, A., & Tookes, H.E. (2013). Corporate leverage, debt maturity, and credit supply: the role of credit default swaps. Review of Financial Studies, 26, 1190-1247. Retrieved November 15, 2013, from EBSCO Online Database Business Source Complete. http://search.ebscohost.com/login.aspx?direct=true&db=bth&AN=87109278&site=ehost-live

Savage, S., & Gregory, K. (2007). It's fundamental. Financial Planning, 37, 151-152. Retrieved September 2, 2009, from EBSCO online database, Business Source Premier. http://search.ebscohost.com/login.aspx?direct=true&db=buh&AN=27350413&site=ehost-live

Segerstrom, J. (2009). Are financial models really to blame? Bank Accounting & Finance (08943958), 22, 39-42. Retrieved September 2, 2009, from EBSCO online database, Business Source Premier. http://search.ebscohost.com/login.aspx?direct=true&db=buh&AN=43610023&site=ehost-live

Shear, W. (2006). Sarbanes-Oxley Act: Consideration of key principles needed in addressing implementation for smaller public companies. Retrieved September 5, 2009, from the United States Government Accountability Office. http://www.gao.gov/new.items/d06361.pdf

Stewart, L., & Trussel, J. (2006). The use of interest rate swaps by nonprofit organizations: evidence from nonprofit health care providers. Journal of Health Care Finance, 33, 6-22. Retrieved September 3, 2009, from EBSCO online database, Business Source Premier. http://search.ebscohost.com/login.aspx?direct=true&db=buh&AN=23606132&site=ehost-live

The SIFMA Organization. (2009). The securities industry and financial markets. Accessed September 1, 2009. http://www.sifma.org/about

Uruguay to swap bonds up to $802m. (2008, June 27). Euroweek, (1060). 16-16. Retrieved September 6, 2009, from EBSCO online database, Business Source Premier. http://search.ebscohost.com/login.aspx?direct=true&db=buh&AN=33276363&site=ehost-live

Use of OTC derivatives by American companies. (2009). The Securities Industry and Financial Markets. Accessed September 1, 2009. http://www.sifma.org/uploadedFiles/Government%5fAffairs/OTC/Use%20of%2 20OTC%20Derivatives%20by%20American%20Companies%20June%202009.pdf

Vlasenko, O., & Kozlov, S. (2009). Choosing the risk curve type. Technological & Economic Development of Economy, 15, 341-351. Retrieved September 2, 2009, from EBSCO online database, Business Source Premier. http://search.ebscohost.com/login.aspx?direct=true&db=buh&AN=43181065&site=ehost-live

Watson III, J. (2009). Industry faces more uncertainty than ever. On Wall Street, 19, 40-42. Retrieved September 2, 2009, from EBSCO online database, Business Source Premier. http://search.ebscohost.com/login.aspx?direct=true&db=buh&AN=41129061&site=ehost-live

Welcome to the MSRB. (2009). The Municipal Securities Rulemaking Board. Accessed September 7, 2009. http://www.msrb.org/msrb1/

Swaps

On this Page

Subject Terms

Swaps

Overview

Interest Rate Swaps

Bond Swaps

Municipal Bonds

Regulation of Municipal Bonds

Reasons for Bond Swaps

International Organizations in the Derivatives Arena

Further Insights

Risk Management & Analysts' Responsibilities

The Sarbanes-Oxley Act

Enterprise Risk Management

Conclusion

Terms & Concepts

Bibliography

Suggested Reading