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The Association for Financial Markets in Europe (AFME) published a new over-the-counter (OTC) protocol for banks and investment firms trading with each other bilaterally, which is to be followed in the event of an insolvency of a signatory.
OTC currently represents
less than 25% of the European equity market. To date, investment firms from the
John Serocold, Managing Director of AFME commented: “The purpose of this OTC protocol is to provide a way to limit and manage the risks arising on insolvency of open bilateral cash equity trades between adhering banks and investment firms. They will benefit from the ability to manage their risks and, if appropriate, put their customers in the position they would have been in, had the trade settled as expected.“
“It is launched at a time of heated debate surrounding the true size of the OTC cash equity market. Contrary to some reports suggesting OTC represents 40% of the equity market, AFME studies show that the true figure is nearer 25%."