Markets and Market Infrastructures: Institutional and Prudential Aspects

In previous chapters we have seen how the configuration of financial intermediation changed, through further consolidation and the blurring between various segments of the industry. What emerges from this chapter is that, alongside the blurring between banking and other intermediaries, there is a similar phenomenon between exchanges and the OTC market.1 In perspective, it is possible that an increasing number of transactions between financial intermediaries performed on a bilateral basis in the OTC market will be settled through clearing houses, thereby reducing (but not eliminating) the counterparty risk for a number of more standardized transactions, which is a typical feature of the regulated and organized markets. The development of financial engineering, both in products — especially derivatives — and in market infrastructure, such as integrated electronic platforms, underpins these market transformations but also introduces new regulatory challenges. These markets are interconnected through the activity of both domestic and large foreign complex financial institutions. These intermediaries are active in structured products where a large volume of transactions simultaneously involves organized markets and OTC markets, both on-shore and off-shore.2