Interest Rate Derivatives Products and Recent Market Activity in the New Regulatory Framework

This chapter describes the new regulatory framework governing the global interest rate derivatives marketplace. It discusses the most significant products, execution mechanisms, credit risk mitigation and clearing techniques, and recent market activity in exchange-traded interest rate derivatives, noncleared over-the-counter (OTC) interest rate derivatives, and cleared OTC interest rate derivatives. The chapter presents a comparative analysis of recent market activity across different interest rate derivatives execution venues, specifically exchange-traded versus OTC interest rate derivatives and OTC interest rate derivatives executed on electronic execution platform (EEPs) versus bilaterally. It analyzes the bifurcation of liquidity that has recently occurred in certain nondollar OTC interest rate derivatives, apparently in response to ongoing disparities and uncertainties regarding the cross-border implementation of U.S. and E.U. regulations. The chapter concludes by considering the potential impact of the recent shift in the derivatives regulation paradigm on interest rate derivatives product and market volumes, new product development, and liquidity.