Understanding OTC Instruments | Russell Investments

Understanding OTC instruments

Adding OTC trading capabilities can expand the toolbox that a client has available to use when facing complex financial circumstances. Learn more.

By Philip Saucier, CFA By Lisa Cavallari, CFA, CAIA, FRM

Every institutional investor faces a unique set of investment concerns and challenges that require the right tools. Exchange traded derivatives are instruments that most institutional investors find advantageous to have in their investment toolbox. However, despite their advantages, over-the-counter (OTC) instruments are less frequently used. Many investors are cautious of these instruments due to their potentially complex nature and time-consuming onboarding process. However, unlike exchange traded derivatives, which are standardized and somewhat limited in scope, OTC transactions offer customization and the ability to target unique risk and return outcomes.

In this paper, we discuss how Russell Investments manages counterparty risk on behalf of our clients through credit monitoring, ISDA negotiation and the collateral management process.

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