Sources say that too many disagreements on where depo rates were had begun impacting on liquidity. The problem has increased as interest rates have moved towards zero – because any discrepancy has a greater impact on the net present value of the premium. “Post Lehman, with depo rates becoming wide and, according to the forward traders, ‘not quoted anymore’, there has been a lot of disputes in agreeing option premia between banks. This led to games where banks would try to set a high depo if they were buying an option and vice versa.
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