OTC COMMODITIES DERIVATIVES
Dealing ‘off-exchange’ or OTC is popular with users and producers who wish to hedge or trade a particular variety of commodity where there is as yet either no exchange traded contract available, it is illiquid, or the contract specification is unsuitable or deemed too rigid. For example, clients may wish to hedge their exposure for a longer period, or to purchase an option with a different strike than that offered by an exchange, or to execute an energy swap where there is no exchange traded equivalent.
The period from 2007 to 2010 saw the notional value outstanding of OTC commodities derivatives fall by approximately two-thirds as investors reduced risk following a five-fold increase in value outstanding in the previous ...
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