This paper offers a model of vertical product differentiation in derivatives markets. Two dealers that choose their risk profile offer insurance to clients who differ in risk aversion. For given risk profiles, a unique price equilibrium exists in which the dealer with the lower risk profile has larger profits. Under plausible conditions, market discipline in the choice of risk profiles emerges: the first mover chooses a low risk profile, and the second mover follows at an optimal distance. The result serves as a reference point for centrally cleared markets where clients cannot distinguish between dealers by their risk profile.