Discriminatory pricing of over-the-counter derivatives
Harald Hau (),
Sam Langfield () and
No 61, ESRB Working Paper Series from European Systemic Risk Board
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. JEL Classification: G14, G18, D4
Keywords: corporate hedging; dealer spreads; information rents; RFQ platforms (search for similar items in EconPapers)
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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)
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Persistent link: https://EconPapers.repec.org/RePEc:srk:srkwps:201761
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