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A Swap Execution Facility (SEF) is a regulated trading platform where participants can buy and sell swaps and other derivatives. SEFs were established under the Dodd-Frank Act in the U.S. to increase transparency and reduce systemic risk in the over-the-counter (OTC) derivatives market. SEFs operate similarly to exchanges, offering a centralized marketplace for swap transactions and providing real-time pricing and trade execution.
A corporation looking to hedge interest rate risk uses an SEF to enter into an interest rate swap with a financial institution, ensuring transparency and compliance with regulatory requirements.
• A regulated trading platform for executing swaps and derivatives.
• Established to increase transparency and reduce risk in the OTC derivatives market.
• Operates like an exchange with centralized trading and real-time pricing.
SEFs were created to bring more transparency, regulation, and centralized trading to the over-the-counter derivatives market, reducing systemic risk.
They offer a centralized platform for trading swaps, providing real-time pricing, transparency, and improved liquidity.
Participants must comply with Dodd-Frank regulations, which include reporting, transparency, and capital requirements to ensure market integrity.
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