HOW DO BANK DERIVATIVES TRADING OPERATIONS WORK?
In many textbooks, when you read about derivatives, the authors commence their discussion of the derivatives markets with a focus upon the listed exchanges, most often the Chicago exchanges. However, the development of the over-the-counter (OTC) derivatives markets is more interesting from the perspective of the derivatives dealer for their comprehensiveness and innovation. Listed markets deal only in plain vanilla options with rigidly defined contract specifications and a limited number of maturities. The OTC markets are characterized literally by an infinite variety of maturities, contract specifications and exotic modifications. Understanding the OTC markets implies an ability to fathom quickly the nuances of the listed markets. The reverse is not necessarily true. This article will provide a general overview of the different ways to organize a dealing room operation and the ways in which the dealing room interacts with clients, counterparties and other interested actors in the glob
