A security-based swap agreement refers to a financial contract between two parties, where they agree to exchange cash flows based on the performance of a particular asset. Such assets may include stocks, bonds, currencies, or commodities.

Security-based swaps provide investors with a way to hedge risks or speculate on the movement of the underlying asset. These agreements can be used to either reduce or increase financial exposure to a particular asset, depending on the investor`s goals.

In the United States, security-based swaps are regulated by the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC). The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 introduced several provisions to regulate security-based swaps to bring transparency to the market.

One of the significant provisions of the Dodd-Frank Act is the requirement for security-based swaps to be traded through registered clearinghouses. Clearinghouses are used to guarantee the transaction, ensuring that both parties fulfill their obligations under the agreement.

Security-based swaps can take different forms, including exchange-traded or over-the-counter agreements. In an exchange-traded agreement, the swap is traded on an organized exchange, while over-the-counter swaps are not exchange-traded.

Several types of security-based swaps exist, including interest rate swaps, credit swaps, and currency swaps. Interest rate swaps allow parties to exchange payments based on fixed and variable interest rates, while credit swaps allow investors to transfer credit risk to another party. Currency swaps allow parties to exchange cash flows based on the performance of different currencies.

In conclusion, security-based swaps are financial agreements between two parties to exchange cash flows based on the performance of an underlying asset. They provide investors with a way to hedge risks or speculate on the performance of assets. The regulation of these agreements by the SEC and CFTC improves transparency in the market and enhances investor protection.