Derivative Market Competition : OTC Versus Organized Derivative Exchanges

Author/Editor:

Jens Nystedt

Publication Date:

April 1, 2004

Electronic Access:

Free Full Text (PDF file size is 432 KB).Use the free Adobe Acrobat Reader to view this PDF file

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary:

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.

Series:

Working Paper No. 04/61

Subject:

English

Publication Date:

April 1, 2004

ISBN/ISSN:

9781451848205/1018-5941

Stock No:

WPIEA0612004

Price:

$15.00 (Academic Rate:$15.00)

Format:

Paper

Pages:

48

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