In response to the challenges posed by the 2022 energy crisis, financial institutions are adapting their strategies by moving derivative activities from exchange-traded markets to over-the-counter (OTC) markets. The source reports that this transition is primarily driven by the need to better manage liquidity risks amid ongoing volatility.
Shift to OTC Markets
The shift to OTC markets allows firms to navigate unprecedented cash demands more effectively, as they can tailor contracts to their specific needs. However, this move comes with increased counterparty exposure, raising concerns about the transparency and systemic resilience of the financial system.
Regulatory Oversight
Regulatory bodies are closely monitoring these developments. The implications of this migration could have far-reaching effects on market stability and risk management practices.
Recent analysis by Wintermute reveals a significant shift in global liquidity trends, contrasting with the ongoing adjustments in financial strategies highlighted in the previous report. For more details, see liquidity issues.
