To date, most academic and practical texts have concentrated on the exchange-traded markets and focused on the nature and price characteristics of the various listed instruments. By contrast, OTC Markets in Derivative Instruments deals in detail with the complexities of the over-the-counter markets - extending a description of the core products to a discussion of real world applications and risks. Regulatory, accounting and tax issues are also covered. Contributors include Bankers Trust, BZW, GNI, Goldman Sachs, J.P. Morgan, Natwest Futures, Midland Montagu and Mitsubishi.

Recent regulatory initiatives in the United States have again raised the issue of a 'level regulatory and supervisory playing field' and the degree of competition globally between over-the-counter (OTC) derivatives and organized derivative exchange (ODE) markets. This paper models some important aspects of how an ODE market interrelates with the OTC markets. It analyzes various ways in which an ODE market can respond to competition from the OTC markets and considers whether ODE markets would actually benefit from a more level playing field. Among other factors, such as different transaction costs, different abilities to mitigate credit risk play a significant role in determining the degree of competition between the two types of markets. This implies that a potentially important service ODE markets can provide OTC market participants is to extend clearing services to them. Such services would allow the OTC markets to focus more on providing less competitive contracts/innovations and instead customize its contracts to specific investors' risk preferences and needs.

This book offers a concise introduction to OTC markets by explaining key conceptual issues and modeling techniques, and by providing readers with a foundation for more advanced subjects in this field.

The financial crisis of 2007–2009 exposed the weaknesses of the global over-the-counter (OTC) derivatives market such as limited transparency regarding risk exposures, poor counterparty risk management practices, and the risk of contagion arising from interconnectedness in this market. In the aftermath of the financial crisis, regulators introduced worldwide legislative and regulatory changes aimed at increasing the transparency and stability of the financial markets. In this book, Dr. Olga Lewandowska explores those novel regulatory solutions and their impact. The main focus is on central counterparty (CCP) clearing that became mandatory for OTC derivatives under the new regulatory paradigm. In four research papers, she analyzes CCP from different risk perspectives and based on four diverse research methods. Her book offers a comprehensive assessment of the risk-reduction potential of the CCPs, their implications for the financial markets, and the practical challenges in the implementation of the recent financial market reforms.

The OTC market, which is dominated by commercial banks, has been alleged to pose a considerable barrier to the growth of exchange traded derivatives. If banks substitute OTC products to their captive clients, transactions costs for hedging could be excessive relative to those of exchange traded products. The dominant position of OTC currency derivatives products relative to exchange traded derivatives could be troublesome for a number of other reasons including lack of transparency, with insufficient disclosure at the entity level. Lower transactions costs and trader anonymity provide relative advantages to futures markets for conveying information of informed traders/speculators. This paper tests the informational advantage hypothesis for foreign exchange futures contracts relative to OTC contracts using actual OTC foreign exchange derivative trading data. In addition, we test for substitutability vs. complementarity of OTC products against foreign exchange futures products. We examine monthly trading volume and volatility estimates of the OTC market and the futures market for the Canadian Dollar over the period January 1998 to September 2005. Futures trading activity is shown to provide leading information to the OTC markets, suggesting that there are informational advantages to futures markets. Trading volume in the OTC (exchange traded) market shows uni-(bi-) directional Granger causality to the volatility to both spot and futures markets, consistent with greater responsiveness of the exchange traded (OTC) market to changes in market-wide (idiosyncratic)risk. Regression tests support substitutability between the foreign exchange futures market and the OTC derivatives market.