Question

Discuss how the OTC markets are becoming more like exchange-traded markets as a result of post-crisis regulations. What role do CCPs play and how are they similar to exchange clearing houses? Discuss futures vs. OTC trades and margin requirements.

Answer 1

Over the counter markets are becoming more like exchange traded market as there has been better adoption of rules and regulation after the 2008 crisis and there has been their mechanism of various transactions in order to reduce the counterparty risk along with the reducing liquidity Risk ,so there has been a high level of transparency and better Structure mechanism and hence can we say that the over the counter markets are becoming more exchange-traded Markets and they arer more secure and they are enhancing operations in order to comply with the rules and regulation.

Central counterparty clearing house is enhancing its operation and it is eliminating the liquidity risk along with credit risk in order to lower the counterparty risk which are associated with the over the counter exchange markets.

Margin requirements for over the counter trades are much higher than the margin requirements of the exchange based trade as, they are trying to increase the margin base in order to reduce the credit risk.