Discriminatory Pricing of Over-the-Counter Derivatives

Harald Hau, Peter Hoffmann (), Sam Langfield () and Yannick Timmer
Additional contact information
Peter Hoffmann: European Central Bank, 60314 Frankfurt, Germany
Sam Langfield: European Central Bank, 60314 Frankfurt, Germany

Management Science, 2021, vol. 67, issue 11, 6660-6677

Abstract: For the first time, new regulatory data allow precise measurement of price discrimination against nonfinancial clients in the foreign exchange derivatives market. Consistent with the theoretical literature, transaction costs vary systematically with measures of client sophistication. The median client pays 10.9 pips more than blue-chip companies because of its lower level of sophistication, which compares with a sample average effective spread of 6.9 pips. However, price discrimination is fully eliminated when clients trade electronically on multidealer platforms. We also document that less sophisticated clients incur additional costs when trading with their relationship bank and in fast-moving markets, but only for bilaterally negotiated contracts.

Keywords: transaction costs; OTC markets; multi-dealer platforms; relationship trading (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (13)

Downloads: (external link)
http://dx.doi.org/10.1287/mnsc.2020.3787 (application/pdf)

Related works:
Working Paper: Discriminatory Pricing of Over-the-Counter Derivatives (2019)
Working Paper: Discriminatory Pricing of Over-the-Counter Derivatives (2017)
Working Paper: Discriminatory Pricing of Over-The-Counter Derivatives (2017)
Working Paper: Discriminatory pricing of over-the-counter derivatives (2017)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:inm:ormnsc:v:67:y:2021:i:11:p:6660-6677

Access Statistics for this article

More articles in Management Science from INFORMS Contact information at EDIRC.
Bibliographic data for series maintained by Chris Asher ().