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Regulation, economies of scale and credit Ratings: A puzzle of declining market concentration in the OTC derivatives market

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  • Tata, Fidelio

Abstract

We explore what impact regulatory change had on the over-the-counter (OTC) derivatives market dynamics. We find that despite the increase in regulatory burden and the associated costs of derivative business for broker/dealers, there is no evidence suggesting that the competition in the OTC derivatives business among banks declined, nor that it caused an increase in concentration of market share. In fact, the opposite appears to be the case. We suggest that this can be explained by derivative end-users having to spread their OTC derivative business among a larger number of banks for risk-management reasons.

Suggested Citation

  • Tata, Fidelio, 2019. "Regulation, economies of scale and credit Ratings: A puzzle of declining market concentration in the OTC derivatives market," Finance Research Letters, Elsevier, vol. 29(C), pages 292-296.
    • Handle: RePEc:eee:finlet:v:29:y:2019:i:c:p:292-296
    DOI: 10.1016/j.frl.2018.08.005
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    More about this item

    Keywords

    OTC derivatives; Market concentration; Regulation;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • D4 - Microeconomics - - Market Structure, Pricing, and Design
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms

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