Today the Reserve Bank of India placed on its website a Working Paper titled “Pricing of Interdealer OTC Derivatives in a Limit Order Market” under the Reserve Bank of India Working Paper Series^[1]. The Paper is co-authored by Vidya Kamate and Abhishek Kumar.

The paper examines the trading behaviour and prices in an interdealer market populated by traders of varying liquidity needs using interdealer trade-level data on Overnight Indexed Swaps (OIS) in India.

The analysis highlights that:

1. Inactive investors, proxied by traders’ lower level of trading volume in the previous quarter, received a lower return relative to active investors when trading outside the Central Limit Order Book (CLOB) venue but received relatively better returns on it.
2. Active investors preferred trading on CLOB (faster venues) consistent with their venue choice being driven by their speed preference.
3. Inactive traders submitted limit orders and faced slower execution whereas active traders submitted market orders and received quicker execution on CLOB.

(Yogesh Dayal)       
Chief General Manager

Press Release: 2023-2024/2003