Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/193568
Authors: 
Hau, Harald
Hoffmann, Peter
Langfield, Sam
Timmer, Yannick
Year of Publication: 
2017
Series/Report no.: 
ESRB Working Paper Series 61
Abstract: 
New regulatory data reveal extensive discriminatory pricing in the foreign exchange derivatives market, in which dealer-banks and their non-financial clients trade over-the-counter. After controlling for contract characteristics, dealer fixed effects, and market conditions, we find that the client at the 75th percentile of the spread distribution pays an average of 30 pips over the market mid-price, compared to competitive spreads of less than 2.5 pips paid by the bottom 25% of clients. Higher spreads are paid by less sophisticated clients. However, trades on multi-dealer request-for-quote platforms exhibit competitive spreads regardless of client sophistication, thereby eliminating discriminatory pricing.
Subjects: 
dealer spreads
information rents
RFQ platforms
corporate hedging
JEL: 
G14
G18
D4
Persistent Identifier of the first edition: 
ISBN: 
978-92-95210-48-6
Document Type: 
Working Paper
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