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Discriminatory Pricing of Over-the-Counter Derivatives
by Harald Hau, Peter Hoffmann, Sam Langfield, and Yannick Timmer

Series:Working Paper No. 19/100
ISBN 9781498303774
Code: #WPIEA2019100

Publication year: 2019

Cdn: $27.00; US: $25.00
Paperback
Language: English
45 pages
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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.
Discriminatory Pricing of Over-the-Counter Derivatives
Cdn: $27.00; US: $25.00
International Monetary Fund (IMF) BookID: 124928 Added: 2019.5.11