Before revision: In this paper, we show both theoretically and empirically that the size of over-the-counter (OTC) markets can be reduced without affecting individual net positions. First, we find that the networked nature of these markets generates an excess of notional obligations between the aggregate gross amount and the minimum amount required to satisfy each individual net position. Second, we show conditions under which such excess can be removed. We refer to this netting operation as compression and identify feasibility and efficiency criteria, highlighting intermediation as the key element for excess levels.
After revision: In this paper, we show both theoretically and empirically that the size of over-the-counter markets, are especially susceptible to reductions of notional and identify feasibility and efficiency criteria, highlighting intermediation as the key element for excess levels.