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Showing posts from April, 2016

A double MAC, please.

Recently concerns related to MAC swaps and CME swap futures based on those swaps have resurfaced in the press. See the letter from ISDA/CME/SIFMA/FIA and the article in Risk Magazine (subscription required): MAC swaps, swap futures face new tax threat . Similar issues have been discussed in the past: Tax questions cloud prospects for CME swap future and MAC swaps.  MAC what? MAC stands for Market Agreed Coupon . “Market Agreed” is probably a misnomer as nobody other than the trade participants has to agree with the coupon. The real meaning is a swap with a fixed coupon at a rounded figure, usually every 25 bps, and the trade is not done on the fixed rate but on the price. For example a quote can be “a 10Y receiver, 2.25% coupon swap at a price of 97bps” or something similar. The price is paid as a one-off fee at the settlement or effective date of the swap. In the sequel I will call “ continuous coupon swap ”, the swaps where the coupon is not necessarily one of the discrete cou