Excerpts from Issue 1: TCS BaNCS Research Journal

OTC markets boost innovation and help clients efficiently hedge against commodity and currency volatility. Over time, the clearing houses and OTC market participants will no doubt be able to implement the right risk models, but in the interim some mechanisms must be put in place for centrally monitoring trade volumes and risk.

The need of the hour is to find a way of continuing to foster innovation in the financial markets while curbing the excesses that inevitably result from operating in totally unregulated markets. OTC derivative trades by virtue of their anonymity, huge leverage and global nature of operations can affect the real economy in very real ways.

While OTC participants might eventually find ways to standardize and regulate their trades and risk mechanisms, regulators face the task of ensuring that before this happens, the global financial system is not extensively and irreparably damaged.

In addition to regulatory solutions, governments can also examine the possibility of providing incentives to market participants to not engage in opaque and risky trades. So it is quite conceivable that the financial community will come up with innovative ways to overcome the proposed regulations.

In this white paper, we critically analyze whether OTC markets are viable for trading derivatives.

Read the white paper.

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