Discriminatory Pricing of Over-the-Counter Derivatives
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...
Main Author: | |
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Other Authors: | , , |
Format: | eBook |
Language: | English |
Published: |
Washington, D.C.
International Monetary Fund
2019
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Series: | IMF Working Papers
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Subjects: | |
Online Access: | |
Collection: | International Monetary Fund - Collection details see MPG.ReNa |
Summary: | 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 |
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Physical Description: | 45 pages |
ISBN: | 9781498303774 |