OTC Derivatives: Bilateral Trading and Central Clearing

OTC Derivatives: Bilateral Trading and Central Clearing
Author: David Murphy
Publisher: Palgrave Macmillan
Total Pages: 304
Release: 2013-09-04
Genre: Business & Economics
ISBN: 9781137293855

Download OTC Derivatives: Bilateral Trading and Central Clearing Book in PDF, Epub and Kindle

The OTC derivatives market has been hit by a massive wave of regulatory change. Capital and margin requirements have increased, trade reporting has been mandated, and execution mechanisms are evolving. Most of all, central clearing is being imposed for many transactions. OTC Derivatives: Bilateral Trading and Central Clearing explains the new rules and the new models. It discusses the traditional bilateral market, then sets out how this will change due to mandatory central clearing and the new ways in which OTC derivatives will have to be traded, reported, and processed. The risks of OTC derivatives clearing houses are discussed in detail, as are the protections that CCPs have against these risks. The book also looks at alternatives to some of the policy decisions that have been made, showing the balance between costs and benefits of various different approaches to derivatives market stability. The book is both a detailed primer on OTC derivatives clearing and a powerful insight into post-crisis financial regulation. Key features of the book include: • A discussion of the capital rules for OTC derivatives counterparty credit risk in Basel III; • An account of OTC derivatives trade processing in both bilateral and cleared markets; • A detailed account of the risk profile of OTC derivatives CCPs; • An explanation of the risks run in various collateral segregation models; and • A comparison of various macro-prudential tools for enhancing the financial stability of OTC derivatives markets.

Discriminatory Pricing of Over-the-Counter Derivatives

Discriminatory Pricing of Over-the-Counter Derivatives
Author: Hau Harald
Publisher: International Monetary Fund
Total Pages: 45
Release: 2019-05-07
Genre: Business & Economics
ISBN: 1498303773

Download Discriminatory Pricing of Over-the-Counter Derivatives Book in PDF, Epub and Kindle

New regulatory data reveal extensive price discrimination against non-financial clients in the FX derivatives market. The client at the 90th percentile pays an effective spread of 0.5%, while the bottom quarter incur transaction costs of less than 0.02%. Consistent with models of search frictions in over-the-counter markets, dealers charge higher spreads to less sophisticated clients. However, price discrimination is eliminated when clients trade through multi-dealer request-for-quote platforms. We also document that dealers extract rents from captive clients and market opacity, but only for contracts negotiated bilaterally with unsophisticated clients.

Collateral, Netting and Systemic Risk in the OTC Derivatives Market

Collateral, Netting and Systemic Risk in the OTC Derivatives Market
Author: Mr.Manmohan Singh
Publisher: International Monetary Fund
Total Pages: 17
Release: 2010-04-01
Genre: Business & Economics
ISBN: 1451982763

Download Collateral, Netting and Systemic Risk in the OTC Derivatives Market Book in PDF, Epub and Kindle

To mitigate systemic risk, some regulators have advocated the greater use of centralized counterparties (CCPs) to clear Over-The-Counter (OTC) derivatives trades. Regulators should be cognizant that large banks active in the OTC derivatives market do not hold collateral against all the positions in their trading book and the paper proves an estimate of this under-collateralization. Whatever collateral is held by banks is allowed to be rehypothecated (or re-used) to others. Since CCPs would require all positions to have collateral against them, off-loading a significant portion of OTC derivatives transactions to central counterparties (CCPs) would require large increases in posted collateral, possibly requiring large banks to raise more capital. These costs suggest that most large banks will be reluctant to offload their positions to CCPs, and the paper proposes an appropriate capital levy on remaining positions to encourage the transition.

Central Counterparties

Central Counterparties
Author: Jon Gregory
Publisher: John Wiley & Sons
Total Pages: 329
Release: 2014-06-17
Genre: Business & Economics
ISBN: 1118891570

Download Central Counterparties Book in PDF, Epub and Kindle

Practical guidance toward handling the latest changes to the OTC derivatives market Central Counterparties is a practical guide to central clearing and bilateral margin requirements, from one of the industry's most influential credit practitioners. With up-to-date information on the latest regulations imposed after the global financial crisis, this book covers the mechanics of the clearing process and analyses the resulting consequences. Detailed discussion explains the ways in which the very significant clearing and margining rules will affect the OTC derivatives market and the financial markets in general, with practical guidance toward implementation and how to handle the potential consequences. Over-the-counter derivatives were blamed by many for playing a major role in the 2007 financial crisis, resulting in a significant attention and dramatic action by policymakers, politicians, and regulators to reduce counterparty credit risk which was seen as a major issue in the crisis. The two most important regulatory changes are the mandatory clearing of standardised OTC derivatives, and the requirements for bilateral margin posting in non-standard OTC contracts. Central Counterparties is a complete reference guide to navigating these changes, providing clarification and practical advice. Review the mitigation of counterparty credit risk with the historical development of central clearing Clarify the latest regulatory requirements imposed by Dodd-Frank, EMIR, Basel III and more Learn the mechanics of central clearing, with special attention to complex issues such as margin calculations, the loss waterfall, client clearing and regulatory capital rules Gain insight into the advantages and disadvantages of clearing and bilateral margin requirements, and the potential issues that arise As the clearing and margining mandates are phased in, the associated costs will be severe enough to dramatically shift the topology of the financial markets and transform the nature of risk. Central Counterparties provides the information, clarification and expert insight market practitioners need to get up to speed quickly.

Derivative Market Competition

Derivative Market Competition
Author: Mr.Jens Nystedt
Publisher: International Monetary Fund
Total Pages: 49
Release: 2004-04-01
Genre: Business & Economics
ISBN: 145184820X

Download Derivative Market Competition Book in PDF, Epub and Kindle

Recent regulatory initiatives in the United States have again raised the issue of a 'level regulatory and supervisory playing field' and the degree of competition globally between over-the-counter (OTC) derivatives and organized derivative exchange (ODE) markets. This paper models some important aspects of how an ODE market interrelates with the OTC markets. It analyzes various ways in which an ODE market can respond to competition from the OTC markets and considers whether ODE markets would actually benefit from a more level playing field. Among other factors, such as different transaction costs, different abilities to mitigate credit risk play a significant role in determining the degree of competition between the two types of markets. This implies that a potentially important service ODE markets can provide OTC market participants is to extend clearing services to them. Such services would allow the OTC markets to focus more on providing less competitive contracts/innovations and instead customize its contracts to specific investors' risk preferences and needs.

Regulation of the Over-the-counter Derivatives Market

Regulation of the Over-the-counter Derivatives Market
Author: United States. Congress. House. Committee on Agriculture. Subcommittee on Risk Management and Specialty Crops
Publisher:
Total Pages: 166
Release: 1998
Genre: Business & Economics
ISBN:

Download Regulation of the Over-the-counter Derivatives Market Book in PDF, Epub and Kindle

Post-Trade Processing of OTC Derivatives

Post-Trade Processing of OTC Derivatives
Author: Olga Lewandowska
Publisher: BoD – Books on Demand
Total Pages: 222
Release: 2020-04-30
Genre: Business & Economics
ISBN: 3838214447

Download Post-Trade Processing of OTC Derivatives Book in PDF, Epub and Kindle

The financial crisis of 2007–2009 exposed the weaknesses of the global over-the-counter (OTC) derivatives market such as limited transparency regarding risk exposures, poor counterparty risk management practices, and the risk of contagion arising from interconnectedness in this market. In the aftermath of the financial crisis, regulators introduced worldwide legislative and regulatory changes aimed at increasing the transparency and stability of the financial markets. In this book, Dr. Olga Lewandowska explores those novel regulatory solutions and their impact. The main focus is on central counterparty (CCP) clearing that became mandatory for OTC derivatives under the new regulatory paradigm. In four research papers, she analyzes CCP from different risk perspectives and based on four diverse research methods. Her book offers a comprehensive assessment of the risk-reduction potential of the CCPs, their implications for the financial markets, and the practical challenges in the implementation of the recent financial market reforms.

Making OTC Derivatives Safe—A Fresh Look

Making OTC Derivatives Safe—A Fresh Look
Author: Mr.Manmohan Singh
Publisher: International Monetary Fund
Total Pages: 24
Release: 2011-03-01
Genre: Business & Economics
ISBN: 1455228044

Download Making OTC Derivatives Safe—A Fresh Look Book in PDF, Epub and Kindle

Recent regulatory efforts, especially in the U.S. and Europe, are aimed at reducing moral hazard so that the next financial crisis is not bailed out by tax payers. This paper looks at the possibility that central counterparties (CCPs) may be too-big-to-fail entities in the making. The present regulatory and reform efforts may not remove the systemic risk from OTC derivatives but rather shift them from banks to CCPs. Under the present regulatory overhaul, the OTC derivative market could become more fragmented. Furthermore, another taxpayer bailout cannot be ruled out. A reexamination of the two key issues of (i) the interoperability of CCPs, and (ii) the cost of moving to CCPs with access to central bank funding, indicates that the proposed changes may not provide the best solution. The paper suggests that a tax on derivative liabilities could make the OTC derivatives market safer, particularly in the transition to a stable clearing infrastructure. It also suggests reconsideration of a "public utility" model for the OTC market infrastructure.

The Effective Regulation of the Over-the-counter Derivatives Market

The Effective Regulation of the Over-the-counter Derivatives Market
Author: United States. Congress. House. Committee on Financial Services. Subcommittee on Capital Markets, Insurance, and Government Sponsored Enterprises
Publisher:
Total Pages: 216
Release: 2009
Genre: Derivative securities
ISBN:

Download The Effective Regulation of the Over-the-counter Derivatives Market Book in PDF, Epub and Kindle

Over-the-Counter Derivatives Regulation in Hong Kong and Singapore

Over-the-Counter Derivatives Regulation in Hong Kong and Singapore
Author: Christopher Chen
Publisher: BRILL
Total Pages: 58
Release: 2017-02-06
Genre: Law
ISBN: 9004343415

Download Over-the-Counter Derivatives Regulation in Hong Kong and Singapore Book in PDF, Epub and Kindle

In this work, Christopher Chen examines and compares the regulation of over-the-counter derivatives in Hong Kong and Singapore regarding the reporting, clearing and trading mandates for regulating OTC derivatives in relation to developments in the US and Europe.