Finding Safe, Simple Alternatives to Over-the-Counter Instruments and Markets. A Positive Response to the OTC Market Risky Disequilibrium and Post-Crisis Poor Regulatory Remedies

Over-the-counter (OTC) traders cannot pursue the two fundamental objectives of portfolio management, the identification of portfolio market risk and return and its diversification. The result of this major market shortcoming is a complex, systemically risky market disequilibrium. The tradable instruments that would address this problem – making financial markets simpler, safer, and transparent – are missing. They would permit dealers to manage OTC portfolios by conventional means, instead of the complicated, subjective valuation and systemically risky hedging methods available now. The introduction summarizes the current market disequilibrium. The second section summarizes adjustments that permit price discovery and diversification of risks by opening asset and derivative trading and market pricing in OTC markets. The third section describes FFDs, zero-market-value instruments that complete OTC derivatives markets. The fourth section describes new OTC asset trading mechanisms. The final section concludes