Any swap where settlement takes place by periodically marking interest payments to market (marking to market, MTM). For example, in a credit default swap (CDS), the debtor (or lower credit-rating) counterparty pays the creditor (or higher credit-rating) counterparty on a periodic basis (daily, monthly, etc) the net value based on the agreed notional amount, i.e., when that value exceeds a predetermined level. If marking to market occurs too frequently, the swap operates similarly to a futures contract. This artificial type of off-exchange futures is banned in some jurisdictions like the United States.
March 2, 2024
