OTC Bilateral Contract Life Cycle
The previous chapter introduced the life cycle of OTC cleared contracts, which are created as a result of new regulations and whose life cycles resemble listed contracts. This chapter introduces the life cycle of OTC bilateral (or simply bilateral) contracts, which are the oldest of derivatives contracts. Bilateral markets have improved market practices and operational procedures to reduce the risk from derivatives and promote safer markets.
OTC bilateral contracts are a critical part of the derivatives market. An OTC bilateral contract is a direct agreement between two market participants, and contract obligations are settled directly between counterparties. No clearinghouse is involved in the ...