Download or read book Derivative Market Competition written by Mr.Jens Nystedt and published by International Monetary Fund. This book was released on 2004-04-01 with total page 49 pages. Available in PDF, EPUB and Kindle. Book excerpt: 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.

Download or read book Derivative Market Competition written by Jens Nystedt and published by . This book was released on 2004 with total page 54 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Derivative Market Competition written by Jens Nystedt and published by . This book was released on 2008 with total page 48 pages. Available in PDF, EPUB and Kindle. Book excerpt: Recent regulatory initiatives in the United States have again raised the issue of a quot;level regulatory and supervisory playing fieldquot; 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.

Download or read book Derivative Market Competition written by Nystedt T. Jens and published by . This book was released on with total page pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Imperfect Competition in Derivatives Markets written by Christina Brinkmann and published by . This book was released on 2022 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: Since the push towards central clearing in derivatives markets after the global financial crisis, an open question has been how the development has affected competition. This paper models imperfect competition between dealers in derivatives markets. Two risk-neutral dealers offer derivatives to risk-averse clients with a hedging need, and compete in price (fee) and quality (default probability). I find that with such two-dimensional competition, for given default probabilities, an equilibrium in prices exists that is preferred by both dealers. In this equilibrium the dealer with the lower default probability makes larger profits - a feature, that can produce market discipline to keep the own default probability low. If a central counterparty (CCP) is introduced as an innovation that removes the quality dimension of the competition, this market force pushing for higher qualities vanishes.

Download or read book The Market for Derivatives Products Co operation Vs Competition written by Barbara Alemanni and published by . This book was released on 1999 with total page 27 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Derivatives Markets written by Robert Lynch McDonald and published by Addison-Wesley. This book was released on 2003 with total page 881 pages. Available in PDF, EPUB and Kindle. Book excerpt: This text for derivatives courses are suitable for advanced undergraduates and both introductory and advanced derivatives courses at the MBA level. The material in derivatives courses is challenging for most students.

Download or read book Competition Without Fungibility written by Söhnke M. Bartram and published by . This book was released on 2019 with total page 26 pages. Available in PDF, EPUB and Kindle. Book excerpt: In this paper, we compare option contracts from a traditional derivatives exchange to bank-issued options, also referred to as covered warrants. While bank-issued option markets and traditional derivatives exchanges exhibit significant structural differences such as the absence of a central counterparty for bank-issued options, they frequently exist side-by-side, and the empirical evidence shows that there is significant overlap in their product offerings although options are not fungible between the two markets. The empirical analysis indicates that bid-ask spreads in either market are lowered by 1-2% due to competition from the other market, providing evidence that the benefits of competing market structures are available in the absence of fungibility.

Download or read book Discriminatory Pricing of Over the Counter Derivatives written by Hau Harald and published by International Monetary Fund. This book was released on 2019-05-07 with total page 45 pages. Available in PDF, EPUB and Kindle. Book excerpt: 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.

Download or read book The Development of Financial Derivatives Markets written by Sean M. O'Connor and published by . This book was released on 1993 with total page 82 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Recommendations for Central Counterparties written by Group of Ten. Committee on Payment and Settlement Systems and published by . This book was released on 2004 with total page 80 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Three Essays in Financial Markets The Bright Side of Financial Derivatives Options Trading and Firm Innovation written by Iván Blanco and published by Ed. Universidad de Cantabria. This book was released on 2019-02-15 with total page 90 pages. Available in PDF, EPUB and Kindle. Book excerpt: Do financial derivatives enhance or impede innovation? We aim to answer this question by examining the relationship between equity options markets and standard measures of firm innovation. Our baseline results show that firms with more options trading activity generate more patents and patent citations per dollar of R&D invested. We then investigate how more active options markets affect firms' innovation strategy. Our results suggest that firms with greater trading activity pursue a more creative, diverse and risky innovation strategy. We discuss potential underlying mechanisms and show that options appear to mitigate managerial career concerns that would induce managers to take actions that boost short-term performance measures. Finally, using several econometric specifications that try to account for the potential endogeneity of options trading, we argue that the positive effect of options trading on firm innovation is causal.

Download or read book Excessive Margin Requirements and Intermarket Derivative Exchange Competition written by Hans R. Dutt and published by . This book was released on 2008 with total page 150 pages. Available in PDF, EPUB and Kindle. Book excerpt: Excessive margin requirements and intermarket derivative exchange competition: A study of the effect of risk management on market microstructure.

Download or read book Electronic Markets and Floor Markets written by Hugues Levecq and published by . This book was released on 2009 with total page 20 pages. Available in PDF, EPUB and Kindle. Book excerpt: The internationalization of financial markets and the increasing demand for risk management products have fueled the growth of derivatives markets. While most exchanges have experienced increasing volumes over recent years, the pace of growth varies widely across exchanges, and the established marketplaces face increasing competitive pressures. In this paper, we investigate whether the trading mechanism offered to derivatives investors influences growth in market volumes. In particular,we distinguish between manual open outcry and electronic trading. In a floor market, traders gather in a pit and announce their orders. They complete trades using acombination of hand signals and eye contact. In an electronic market, orders a resubmitted to a central order book, and trades are created according to a matching algorithm. Using volume data from 1990-1994 for futures and options exchanges worldwide, we compute growth rates for the largest contracts and find that contracts traded in screen-based exchanges have experienced faster growth than those traded inmanual markets. We discuss several interpretations of the data, but conclude that electronic exchanges are developing a competitive advantage.

Download or read book Discriminatory Pricing of Over the counter Derivatives written by Harald Hau and published by . This book was released on 2017 with total page 39 pages. Available in PDF, EPUB and Kindle. Book excerpt: New regulatory data reveal extensive discriminatory pricing in the foreign exchange derivatives market, in which dealer-banks and their non-financial clients trade over-the-counter. After controlling for contract characteristics, dealer fixed effects, and market conditions, we find that the client at the 75th percentile of the spread distribution pays an average of 30 pips over the market mid-price, compared to competitive spreads of less than 2.5 pips paid by the bottom 25% of clients. Higher spreads are paid by less sophisticated clients. However, trades on multi-dealer request-for-quote platforms exhibit competitive spreads regardless of client sophistication, thereby eliminating discriminatory pricing.

Download or read book The Economics of Financial Derivative Instruments written by Godwin Chukwudum Nwaobi and published by . This book was released on 2009 with total page 73 pages. Available in PDF, EPUB and Kindle. Book excerpt: The phenomenal growth of derivative markets across the globe indicates their impact on the global financial scene. As the securities markets continue to evolve, market participants, investors and regulators are looking at different way in which the risk management and hedging needs of investors may be effectively met through the derivative instruments. However, it is equally recognised that derivative markets present market participants and regulators with different and complex regulatory (control) issues, which must be adequately addressed if derivative markets are to gain and maintain investor confidence. And yet, more and more companies are using (or being forced to use) futures and derivatives to stay competitive in a fast-changing world characterised by both unprecedented opportunities and unprecedented risks. Thus, the thrust of this paper is to provide a detailed study of the manner in which the market works and how the knowledge can be used to make profits and avoid losses in a competitive economy setting.

Download or read book Competition in Regulated Over the counter Markets written by Natalie Kessler and published by . This book was released on 2022 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: A common thread throughout all three thesis chapters is the combined usage of theoretical models and empirical methods to study the effect of a regulatory shift on the (competitive) equilibrium outcomes. In the first chapter, I analyze the effect of mandatory counterparty default insurance (central clearing) of over-the-counter (OTC) derivatives on aggregate financial risk exposure. I carefully model the competitive mechanisms in both the OTC derivatives and their insurance market. I show that the introduction of mandatory insurance empowers the for-profit central counterparty (CCP) to raise prices, wherefore only larger clients opt to additionally insure their derivatives (lower credit risk). Smaller clients instead exit the market and remain unhedged (higher market risk). I conclude with a model calibration and counterfactual policy evaluation for the EuroDollar FX derivatives market, showing that mandatory insurance increases aggregate financial risk. In the second chapter, joined with Iman van Lelyveld and Ellen van der Woerd, we predict the reduction in short-sell constraints due to an out-ruling of exclusive security lending agreements (ESLAs). Broker-dealers intermediate stock lending between lenders with large portfolios and borrowers seeking to short sell. We study why some lenders commit to a single broker-dealer via exclusive security lending agreements (ESLAs) at the cost of foregoing profitable trades, and how this impacts aggregate lending. We provide a detailed market overview both on a transaction and counterparty-pair level. Gained insights inform a three-period representative lender model that rationalizes why ESLAs arise in equilibrium. After carefully evaluating the model fit, we predict the counterfactual trading volumes in the absence of existing ESLAs. We find that trading volumes would significantly increase, up to 8%. In my final chapter, joined with Johannes Fischer, we study the impact of stress tests and complementary dividend regulations on equilibrium bank lending. Bank stress tests, regularly conducted to ensure stable lending, constitute a de facto constraint on balance sheets: equity must be sufficient to maintain current lending also in the future, even after absorbing severe loan losses. We study the effects of such forward looking constraints in a representative bank model. More severe-stress test scenarios lead to lower dividends, higher equity levels, and universally lower, albeit less volatile, lending. We calibrate our model to large U.S. banks, subject to Federal Reserve stress tests, and compute the optimal, state-dependent severity of stress tests and implied capital buffers (up to 6% during normal times). Finally, we complement stress tests with three macroprudential policies: the Covid-19 dividend ban, the counter-cyclical capital buffer (CCyB), and the proposed dividend prudential target (DPT). We find that combing stress tests with a dividend ban or DPT improves supervisor welfare equally. Due to its discontinuous nature, however, relaxing the CCyB falls short.