The new OTC derivatives landscape: (more) transparency, liquidity, and electronic trading

Cristiano Zazzara ()
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Cristiano Zazzara: S&P Global Market Intelligence

Journal of Banking Regulation, 2020, vol. 21, issue 2, No 5, 170-187

Abstract: Abstract Inspired by recent papers of Hull (Financ Stab Rev 14(July):71–80, 2010; J Deriv 20(1 (Fall)):26–29, 2012; J Financ Eng 1(3 (September)):1–8, 2014) on the topic, this note provides an overview of the OTC derivatives reform proposed by the G20 leaders in September 2009 as a response to the recent subprime crisis. The goal is to describe the major different legislations approved, and in some cases implemented, around the world (with a particular focus on US and Europe), and how this structural change in the OTC derivatives market will affect the way financial and non-financial firms operate. The main takeaway of this note is the (evolving) regulatory landscape will definitely push for the standardization of OTC products over time, implying a more transparent, liquid, and simpler OTC derivatives market. However, bespoke OTCs will still play a significant role in the market, simply because plain vanilla OTC instruments and exchange-traded derivatives (Futures, for example) are less suitable for hedging purposes. The structure of the OTC derivatives market will change in the next years. Firms around the world should be prepared to navigate a fast moving market and regulatory landscape.

Keywords: OTC derivatives; Dodd–Frank; EMIR; MiFID 2/MIFIR; Basel 3; CRD IV/CRR; Central clearing; Trade repositories; Electronification; Margin (search for similar items in EconPapers)
JEL-codes: D40 G10 G15 G18 (search for similar items in EconPapers)
Date: 2020
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DOI: 10.1057/s41261-019-00105-0

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