OTC derivative
1
9.9
- noun
- Specialized
:
derivado OTC
- In a private agreement, two firms entered into an OTC derivative to hedge their financial risks.
Examples
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When you have an OTC derivative trade, sometimes you owe your counterparty money.
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Clearing requires market participants to post margin against their trades, raising the cost of using OTC derivatives.
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This should make the OTC derivatives market more transparent and thus reduce the risk of contagion.
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For OTC derivatives, for example, liquidity is episodic.
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Furthermore, the G20 calls for standardized OTC derivatives to be executed using electronic platforms.
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Also, the OTC derivatives business in foreign exchange, interest rate swaps, and credit default swaps had exploded from its start in the early 1980s.
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As part of a G20 agreement in 2009, supervisors want most "standardized" OTC derivatives to be centrally cleared.
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The clearing of standardized derivatives trades through CCPs should reduce risk in the overall financial system by facilitating the netting down of OTC derivative exposures.
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All standardized OTC derivatives in the interest rate, credit default, and equities markets will soon have to be centrally cleared through central counterparties (CCPs).
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The value of an OTC derivative depends on the negotiated terms between the two parties involved.
Synonyms
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9.9
A private financial contract made between two parties, not traded on a public exchange
Surface Forms
Morphology
The phrase is compositional: 'OTC' (traded off-exchange/privately) modifies 'derivative' (a financial instrument), so together they denote a derivative traded privately/off-exchange. A learner who knows both constituent meanings can infer this specific sense without idiomatic knowledge.
Etymology
OTC derivative comes from over-the-counter, which gives the image of a deal made across a shop counter instead of on a public market, and derivative means a contract whose value comes from something else. So the name shows it is a financial contract made privately between two people rather than traded on an exchange.