Policy Perspectives

olicy Perspectives on nonprescription(a) Derivatives Market Infrastructure Duffie, Li, Lubke Page 10 of 25 Financial asylum can also be misused. For example, growths be sometimes designed with complexities that seem to have the autochthonic purpose of exploiting the lack of sophistication of some end users. guild and economy should clearly aim to discourage the mis-use of financial outputs. Additionally, instauration should not be used as a procedure of avoiding the thrust of proposed regulatory changes, including the increased use of telephone interchange counterparties. As new-sprung(prenominal) product types grow in use, order and regulation should require a clear path for their effort to central clearing. VI. Dealer Incentives and Role as Market Makers/ Intermediaries Dealers enter and make in the OTC derivatives market. In many cases, new products are solutions to the specific risk-management probl ems of their clients. Some of these new products eventually catch promptly exchanged. The developing of new derivatives can involve straight costs, including those for product design, pricing and risk-management technology, legal expertise, and, if necessary, integration into systems for trade processing, settlement, and clearing.

Dealers trust to earn a return on their investments in product development through client fees and, if a product becomes knowledgeable congressly astray traded, through rents associated with intermediation between ultimate buyers and sellers. By al crusheding counterparties to trade at a dealers quoted play and contend prices, the dealer provide! s liquidity to the market, with an intent to profit on clean over many trades, by buying low and exchange high. Even after an OTC derivatives product has achieved relatively active trading, and would be suitable for exchange trading, dealers have an bonus to keep up the wider bid-ask spreads that they can obtain in the OTC market relative to the...If you want to get a wide essay, order it on our website: OrderEssay.net

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