‘Explosive growth’ in OTC derivative trades
OTC derivatives trades have witnessed explosive growth over the past five years, driven largely by demand for exotic OTC derivatives, according to a new report from Celent, a Boston-based financial research and consulting firm.
The report ‘OTC Derivatives Operations: The Path to STP’ says this growth will continue in line with the increasing commoditisation of vanilla OTC derivatives.
“As vanilla OTC derivatives are now mostly commoditised their margins are dropping, and enterprises in the OTC derivatives marketplace are constantly looking for new instruments to increase their revenues and gains, the report said.
“The number of events related to OTC derivatives trades, such as new trades, confirmable amendments, partial and full terminations, increases/decreases, and novations, are on the rise for all instruments.”
According to the Bank for International Settlements, the OTC derivatives market was worth US$516 trillion as of June 2007.Over-the-counter (OTC) derivatives are contracts that are traded (and privately negotiated) directly between two parties, without going through an exchange or other intermediary.Products such as swaps, forward rate agreements, and exotic options are almost always traded in this way.
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