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Saturday, September 27, 2008

OTC derivatives and exchange-traded derivatives

Mulling over the global financial turbulence induces a focus on problems such as credit rating agencies and OTC derivatives. I have an article in today's Financial Express on the role of OTC and exchange-traded derivatives. You might like to also see this older material: link, page 152--153 of the Mistry report, link, link, link.


  1. Insightful article, specially about RBI's positions & risk.
    Regarding the OTC Vs exchange-traded debate - at a point of time even plain vanilla CDS started off globally as 'exotic' products. Later as the number of parties interested grew, volumes grew and their was a legitimate case for more liquid/standardised products. Taking a leaf out of this experience, shouldn't we be saying that there is a "right" time when these OTC (Forex/Credit) products would make sense being exchange traded rather than privately negotiated. Then, keeping turf-war argument aside for a moment, perhaps there is need to assess whether our markets/economy has reached that level.(Would like to know more on this!)
    Having said that, to me, the debate really is only about 'when' rather than 'why'.

  2. Please also see my piece on OTC derivatives in the Economic Times of 24th Sept - linked at my blog

  3. Hi Ajay ,

    Do you feel that the financial power will shift to oil countries and they will be able to jump in and get cheap assets and become stronger in coming years .. also their quick presence in Africa to mark competitive edge will create more imbalances in days to come

  4. Sir, where do you stand on this debate for the bond market? RBI runs what is in effect an exchange, yet that structure seems to be bad for market development. Is it a question of different structures for different instruments? Or is it that the RBI should be out of it no matter what? Thanks.

  5. Ajay, this really gives a nice picture..

    I personally feel the developments happening in the OTC market is leading it to Exchange market format..
    I had written a paper on this too. Can have a look at


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