Discriminatory Pricing of Over-the-Counter Derivatives by Sam Langfield, European Central Bank.
Please register by sending an email to [email protected] with your full name, surname and university/work-place until 3rd of October, 13:00.
Seminar language: English.
New regulatory data reveal extensive price discrimination against non-financial clients in the FX derivatives market. The client at the 90th percentile pays an effective spread of 0.5%, while the bottom quarter incur transaction costs of less than 0.02%. Consistent with models of search frictions in over-the-counter markets, dealers charge higher spreads to less sophisticated clients. However, price discrimination is eliminated when clients trade through multi-dealer request-for-quote platforms. We also document that dealers extract rents from captive clients and market opacity, but only for contracts negotiated bilaterally with unsophisticated clients.