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Derivatives

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  • September 7, 2022
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Self-Regulating Swap

An interest rate swap that entails the payment of a fixed amount on a certain percentage of the notional amount, while the remaining percentage is based on a floating rate. However, the fixed portion depends on a floating rate such as LIBOR. If LIBOR increases, the floating portion will increase, and vice versa. For example, if LIBOR is 6%, then the fixed portion can be stipulated to be 70%. If LIBOR moves up to 6.5%, then the fixed portion could be 80%, and if it moves down to 5%, the fixed portion could be set at 60%, and so on.

It is also known as an incremental fixed swap.


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