EconPapers    
Economics at your fingertips  
 

Discriminatory Pricing of Over-the-Counter Derivatives

Yannick Timmer, Harald Hau (), Peter Hoffmann and Sam Langfield ()

No 2019/100, IMF Working Papers from International Monetary Fund

Abstract: 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.

Keywords: WP; client sophistication; forward rate; dealer-client relationship; FX market; market structure; Transaction costs; search frictions; information rents; RFQ platforms; sophisticated client; RFQ platform; client order; relationship dealer; information rent; Over-the-counter markets; Public investment and public-private partnerships (PPP); Currency markets; Price adjustments; Securities markets; Global (search for similar items in EconPapers)
Pages: 45
Date: 2019-05-07
New Economics Papers: this item is included in nep-mst
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (10) Track citations by RSS feed

Downloads: (external link)
http://www.imf.org/external/pubs/cat/longres.aspx?sk=46686 (application/pdf)
Our link check indicates that this URL is bad, the error code is: 403 Forbidden

Related works:
Working Paper: Discriminatory Pricing of Over-the-Counter Derivatives (2017) Downloads
Working Paper: Discriminatory Pricing of Over-The-Counter Derivatives (2017) Downloads
Working Paper: Discriminatory pricing of over-the-counter derivatives (2017) Downloads
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:imf:imfwpa:2019/100

Ordering information: This working paper can be ordered from
http://www.imf.org/external/pubs/pubs/ord_info.htm

Access Statistics for this paper

More papers in IMF Working Papers from International Monetary Fund International Monetary Fund, Washington, DC USA. Contact information at EDIRC.
Bibliographic data for series maintained by Akshay Modi ().

 
Page updated 2023-01-28
Handle: RePEc:imf:imfwpa:2019/100