Money market segments

The ECB divides the money market into supply and demand for – unsecured deposits – secured repo transactions and – derivatives, which are subdivided into – exchange-traded instruments, such as a coupon swap, mandatory convertible bond or reverse) and – over-the-counter contracts (instruments that are typically traded over the counter, such as an interest rate swap or a currency swap). – The collateralized money market, where liquidity is traded against the position of securities, is the largest segment globally. The proportion of alternative trading systems is also highest in the collateralized market. – Each segment has its own risk profile; and risk perceptions can change rapidly across segments under certain circumstances, as was evident in the slipstream of the turmoil surrounding subprime crisis. Here, unsecured trading came to an almost complete standstill. By contrast, collateralized (electronic) trading recorded significant increases in turnover. This is because collateralized trading via a central counterparty recognized by the supervisory authorities, in conjunction with the collateral deposited, has the advantage that there is no counterparty risk. The weight shift toward collateralized trades that began in the financial crisis and has been evident globally since then reflects the more important role of credit risk in trading decisions. – See asset-backed commercial paper, computer exchange, derivatives transactions clearing obligation, derivatives transactions reporting obligation, Eurex, Euro GC.
Pooling, counterparty, central, money market, trading system, alternative, interbank money market, market, third, over-the-counter trading, short term European papers. – Cf.
ECB Monthly Bulletin of February 2008, pp. 72 ff. (classification; explanations of risk content; overview of turnover in the individual segments since 2000), Deutsche Bundesbank Monthly Bulletin of August 2014, pp. 31 f. (informative value of the respective risk premium on the money market).

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University Professor Dr. Gerhard Merk, Dipl.rer.pol., Dipl.rer.oec.
Professor Dr. Eckehard Krah, Dipl.rer.pol.
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