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Is it time to start an OTC derivatives market?

Created by : Venkatachalam C V, Sr. Associate, JP MorganChase  | 09 30 2008 07:07:32 +0000
Industry : Investment BankingFunctional Area : Derivatives(Markets)
Keywords : It Market Time Start Derivatives Derivatives Market OTC Derivatives OTC
Activity:  326 views;  last activity : 07 06 2010 20:18:09 +0000
Over-the-counter derivatives and exchange-traded derivatives coexist in healthy competition in most developed markets. Though Longer-dated options are not viable because of low liquidity in exchanges in OTC markets, however, they are quite viable. Is it the right time to start OTC market?
  
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Longer-dated options are not viable at present because of the extremely low liquidity. However, in OTC markets, options with maturities of three to five years are quite viable because of the large ticket size. Indian regulations have driven this important market outside India and the result is a loss of liquidity, a loss of income for Indian financial services firms and a loss of access to OTC derivative markets for Indian securities and investment firms. Bringing this market back to India should be a significant regulatory priority. The SCRA should be amended quickly to allow OTC equity derivatives in India.
By Venkatachalam C V, Sr. Associate, JP MorganChase  | 09 30 2008 07:07:32 +0000
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OTC derivatives lack transparency and it is difficult for regulators to assess both the sytemic risk as well as that to individuals. Any measure to introduce a market for over-the-counter (OTC) derivatives in India must be implemented carefully.

By Alok Kumar Singh, Sr. Associate, UBS  | 09 30 2008 07:09:06 +0000
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