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RBA Glossary definition for OTC

OTC – over-the-counter

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Background

22 Nov 2016 RDP 2016-07
James Hansen and Angus Moore
Second, before participants can enter into OTC derivatives contracts, they must negotiate extensive documentation. ... The three OTC derivatives CCPs licensed in Australia all meet the ‘cover two’ standard.
https://www.rba.gov.au/publications/rdp/2016/2016-07/background.html

Results

22 Nov 2016 RDP 2016-07
James Hansen and Angus Moore
This asymmetry means that higher default probabilities reduce the value of OTC derivatives. ... Internalising the mutualisation externality reduces the value of OTC derivatives to a trader and therefore leads to fewer contracts traded in equilibrium.
https://www.rba.gov.au/publications/rdp/2016/2016-07/results.html

The Efficiency of Central Clearing: A Segmented Markets Approach

1 Oct 2016 RDP 2016-07
James Hansen and Angus Moore
The OTC derivatives contract is the only way traders can manage endowment risk. ... σ. y. 0.0106. Standard deviation in OTC derivatives contract payments. corr(y.
https://www.rba.gov.au/publications/rdp/2016/2016-07/full.html

The Model

22 Nov 2016 RDP 2016-07
James Hansen and Angus Moore
The OTC derivatives contract is the only way traders can manage endowment risk. ... σ. y. 0.0106. Standard deviation in OTC derivatives contract payments. corr(y.
https://www.rba.gov.au/publications/rdp/2016/2016-07/model.html

Introduction

22 Nov 2016 RDP 2016-07
James Hansen and Angus Moore
This paper studies how mandatory central clearing affects market participants' incentives in OTC derivatives markets. ... Traders face idiosyncratic risks that they can hedge by buying or selling OTC derivatives from other traders in their market.
https://www.rba.gov.au/publications/rdp/2016/2016-07/introduction.html

References

22 Nov 2016 RDP 2016-07
James Hansen and Angus Moore
FSB (Financial Stability Board) (2015), ‘OTC Derivatives Market Reforms: Tenth Progress Report on Implementation’, November. ... Heath A, G Kelly, M Manning, S Markose and A Rais Shaghaghi (forthcoming), ‘CCPs and Network Stability in OTC
https://www.rba.gov.au/publications/rdp/2016/2016-07/references.html

Conclusion and Discussion

22 Nov 2016 RDP 2016-07
James Hansen and Angus Moore
Our analysis suggests that:. Central clearing can improve welfare by mitigating counterparty credit risk in OTC derivatives markets. ... The benefits of central clearing are higher the higher the probability of default and the stronger the correlation
https://www.rba.gov.au/publications/rdp/2016/2016-07/conclusion-and-discussion.html

Appendix A: Trader Behaviour and Solution Method

22 Nov 2016 RDP 2016-07
James Hansen and Angus Moore
m. such that the price for both agents is zero. This is consistent with real-world practice: most OTC derivatives have zero net present value when agreed on.
https://www.rba.gov.au/publications/rdp/2016/2016-07/appendix-a.html