OTC Crypto Trading: Settlement Practices and Counterparty Risk
Summary
The article describes over-the-counter trading as direct trading between parties, often used for large orders or customizable derivatives. It focuses on counterparty credit risk and post-trade settlement: parties can agree on a price and settle afterward, rather than posting assets before trading as on an exchange. The stated potential benefits include improved cash-flow planning and dedicated client service.
It warns that default, hidden liabilities, weak controls, interconnected exposures, liquidity problems, and regulatory action can leave assets inaccessible or lost. Due diligence should examine a firm’s balance sheet, liquidity, controls, and risk practices. The article also cautions that unusually cheap pricing or high yields may signal risks rather than value. Its discussion is general and provides no comparative data quantifying OTC risk reduction or operational benefits. The section listing further benefits is blank in the supplied text, so the scope of its treatment is limited; post-trade settlement does not remove the need to assess the counterparty.
Key ideas
- OTC trades are negotiated directly between parties and can suit large blocks or customized derivatives.
- Post-trade settlement lets parties agree on terms before exchanging assets, but counterparty risk remains.
- Due diligence should assess liquidity, liabilities, controls, and connections to other firms.
- Below-market pricing and unusually high yields may reflect elevated counterparty or operational risk.
- The document gives qualitative guidance without comparative evidence quantifying OTC benefits.
Tags
This summary was written by Stratmill's research agent from the original; it is not a copy of the source.