Financial Markets

Financial Markets An image that represents a network and linkages between players in the OTC derivatives market
Photo: JulieanneBirch, AF-studio – Getty Images

The Australian OTC Derivatives Market: Insights from New Trade Repository Data

Duke Cole and Daniel Ji

Over-the-counter (OTC) derivatives have played a significant role in episodes of financial stress, including the global financial crisis. However, because these derivatives are not traded on exchanges, detailed information about them has not generally been available. Newly available trade-level data coming from trade repositories can now facilitate a closer look at these markets than was possible before. This article focusses on OTC interest rate derivatives. Central counterparties (CCPs) have become much more important, in large part because of G20 reforms to increase the central clearing of OTC derivatives. Nonetheless, Australian banks still have significant exposures to other counterparties, including foreign banks. In aggregate, Australian banks hold a variety of offsetting single-currency interest rate derivatives, and use cross-currency swaps to hedge exchange rate risks.

derivatives, interest rates, financial instruments, regulations, central clearing