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OTC premia

Gino Cenedese (), Angelo Ranaldo () and Michalis Vasios

No 751, Bank of England working papers from Bank of England

Abstract: Using trade repository data at transaction and ID levels, we provide the first systematic study of interest rate swaps traded over the counter in the new regulatory regime. We find substantial and persistent heterogeneity in derivatives prices consistent with a pass-through of regulatory costs on to market prices via the so-called valuation adjustments (XVA). Specifically, a client pays a higher price to buy interest-rate protection from a dealer (ie, the client pays a higher fixed rate) if the contract is not cleared via a central counterparty. This OTC premium decreases by posting initial margin and with higher buyer's creditworthiness. Also, OTC premia are absent for dealers suggesting dealers' bargaining power.

Keywords: Interest rate swaps; financial regulation; central clearing; over-the-counter market; valuation adjustments (search for similar items in EconPapers)
JEL-codes: G18 (search for similar items in EconPapers)
Pages: 50 pages
Date: 2018-08-17
New Economics Papers: this item is included in nep-fmk
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Journal Article: OTC premia (2020) Downloads
Working Paper: OTC Premia (2019) Downloads
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