The financial market is a complex ecosystem, governed by various laws and regulations. One such regulation pertains to swaps, which are financial contracts that are used to transfer risk between parties. But are all swaps required to be transacted on a designated contract market (DCM)? Let`s find out.

The short answer is no. While swaps are regulated under the Dodd-Frank Wall Street Reform and Consumer Protection Act, not all swaps are required to be transacted on a DCM. In fact, only certain types of swaps are subject to the DCM requirement.

Under Dodd-Frank, swaps that are considered “mandatory clearing” must be transacted on a DCM or similar entity that is registered with the Commodity Futures Trading Commission (CFTC). Mandatory clearing means that the swaps must be processed through a clearinghouse, which acts as an intermediary between the parties. This is done to reduce counterparty risk and increase transparency in the market.

However, not all swaps are subject to mandatory clearing. Swaps that are not subject to mandatory clearing are known as “non-cleared swaps”. Non-cleared swaps can still be transacted on a DCM or similar entity, but they are not required to be. Non-cleared swaps can be transacted over-the-counter (OTC), meaning that the parties negotiate the terms of the swap directly with each other.

It`s important to note that while not all swaps are required to be transacted on a DCM, they are subject to other regulatory requirements. For example, all swaps are subject to reporting requirements, meaning that the parties must report certain information about the swap to a swap data repository. In addition, swaps that are not subject to mandatory clearing are subject to margin requirements, which are designed to mitigate the risk of default.

In conclusion, not all swaps are required to be transacted on a designated contract market. Only swaps that are subject to mandatory clearing must be transacted on a DCM or similar entity. Non-cleared swaps can still be transacted on a DCM, but they are not required to be. Regardless of where the swap is transacted, all swaps are subject to regulatory requirements that are designed to promote transparency and reduce risk in the financial market.

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