An Analysis of OTC Interest Rate Derivatives Transactions: Implications for Public Reporting

23 Pages Posted: 19 Apr 2012

See all articles by Michael J. Fleming

Michael J. Fleming

Federal Reserve Bank of New York

John P. Jackson

Bank of England

Ada Li

Federal Reserve Banks - Federal Reserve Bank of New York

Asani Sarkar

Federal Reserve Bank of New York

Patricia Zobel

Federal Reserve Bank of New York

Date Written: March 1, 2012

Abstract

This paper examines the over-the-counter (OTC) interest rate derivatives (IRD) market in order to inform the design of post-trade price reporting. Our analysis uses a novel transaction-level data set to examine trading activity, the composition of market participants, levels of product standardization, and market-making behavior. We find that trading activity in the IRD market is dispersed across a broad array of product types, currency denominations, and maturities, leading to more than 10,500 observed unique product combinations. While a select group of standard instruments trade with relative frequency and may provide timely and pertinent price information for market participants, many other IRD instruments trade infrequently and with diverse contract terms, limiting the impact on price formation from the reporting of those transactions. Nonetheless, we find evidence of dealers hedging rapidly after large interest rate swap trades, suggesting that, for this product, a price-reporting regime could be designed in a manner that does not disrupt market-making activity.

Keywords: interest rate derivatives, price reporting, public transparency, standardization

JEL Classification: G12, G13, G18

Suggested Citation

Fleming, Michael J. and Jackson, John P. and Li, Ada and Sarkar, Asani and Zobel, Patricia, An Analysis of OTC Interest Rate Derivatives Transactions: Implications for Public Reporting (March 1, 2012). FRB of New York Staff Report No. 557, Available at SSRN: https://ssrn.com/abstract=2030461 or http://dx.doi.org/10.2139/ssrn.2030461

Michael J. Fleming (Contact Author)

Federal Reserve Bank of New York ( email )

33 Liberty Street
New York, NY 10045
United States
212-720-6372 (Phone)
212-720-1582 (Fax)

HOME PAGE: http://www.newyorkfed.org/research/economists/fleming/

John P. Jackson

Bank of England ( email )

Threadneedle Street
London, EC2R 8AH
United Kingdom

Ada Li

Federal Reserve Banks - Federal Reserve Bank of New York ( email )

33 Liberty Street
New York, NY 10045
United States

Asani Sarkar

Federal Reserve Bank of New York ( email )

Research Department
33 Liberty Street
New York, NY 10045
United States
212-720-8943 (Phone)
212-720-1582 (Fax)

HOME PAGE: http://www.newyorkfed.org/research/economists/sarkar/pub.html

Patricia Zobel

Federal Reserve Bank of New York ( email )

33 Liberty Street
New York, NY 10045
United States

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