Discriminatory Pricing of Over-the-Counter Derivatives

Harald Hau, Peter Hoffmann, Sam Langfield and Yannick Timmer

No 17-70, Swiss Finance Institute Research Paper Series from Swiss Finance Institute

Abstract: 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.

Keywords: Dealer spreads; information rents; RFQ platforms; corporate hedging (search for similar items in EconPapers)
JEL-codes: D4 G14 G18 (search for similar items in EconPapers)
Pages: 41 pages
Date: 2017-12
New Economics Papers: this item is included in nep-mst
References: Add references at CitEc
Citations: View citations in EconPapers (16)

Downloads: (external link)
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3099089 (application/pdf)

Related works:
Journal Article: Discriminatory Pricing of Over-the-Counter Derivatives (2021)
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)
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:chf:rpseri:rp1770

Access Statistics for this paper

More papers in Swiss Finance Institute Research Paper Series from Swiss Finance Institute Contact information at EDIRC.
Bibliographic data for series maintained by Ridima Mittal ().