Increasing Liquidity and Reducing Credit Risk in the Eurodollar Deposit and Futures Markets

Abstract

This note presents changes to OTC asset and futures trading technology that improve market efficiency. The changes integrate two OTC markets, deposits and futures, increasing their value-added to banks, securities investors, and dealers. OTC dealer cash markets are perhaps obsolete. A futures market or a dark pool might move innovation forward. Bankers will never do it; they are too dependent on the old inefficiencies. The Introduction identifies the inefficiencies of OTC banking markets and how they may be replaced. Section Two provides a fuller description of the old OTC system and describes its adverse effects on financial futures markets. Section Three describes the objectives of suggested changes and how they alter trading. The final section concludes the note.