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Dealer revenue from negotiating interest-rate swap transactions is poised to plunge about 45 percent as new rules boost trading costs, pressures that may prompt banks to participate less in the $633 trillion over-the-counter derivatives market, Tabb Group LLC estimates.

Banks collect about $3.25 billion a year from trading rate swaps with their customers, Tabb said. That revenue will shrink to $1.8 billion in 2014 as most transactions shift to public markets, according to a research report meant for Tabb customers that Bloomberg News obtained. Dealers will also need to hold more capital to back trades, boosting expenses, said Will Rhode, who wrote the report.

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