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Swap close-out

For one of the counterparties to an existing swap, a transaction that consists in concluding another swap, called a reverse swap, with the same terms as the initial swap, but in which the counterparty takes an offsetting position to counterbalance its position in the initial swap.

While the initiator of the reversal offsets its position in the initial swap, its exposure to credit risk increases since it now has a counterparty risk in two separate swap contracts instead of one.

Synonyms and variations

  • Swap buyout
  • Swap reversal