Derivatives: market and regulatory dynamics

Article Abstract:

Derivatives have their root in traditional futures contracts. In 1972, the Chicago Mercantile Exchange began trading currency futures and the market for instruments like financial futures grew greatly during the 1980s. Regulators have been hard-pressed to keep up with such a dynamic market. The Commodity Futures Trading Commission was established in 1974 as the main futures regulator but this came to late after other agencies like the SEC already had an interest in this area. Problems have included inadequate calculation of risk and incomplete accounting standards. Progress in solving these problems is necessary.

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Hedging expectations: "derivative reality" and the law and finance of the corporate objective

Article Abstract:

Another corporate paradigm is necessary to determine corporate hedging policy. Pending this event, the expectations of a corporation's shareholders and associated data must supplement the existing corporate paradigm to create a corporation's hedging policy. Actual and potential shareholders should influence the decision of a corporation to hedge and once this decision is made, the corporation should disclose major components of the hedging policy and how these can be changed.

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Betting the bank: how derivatives trading under conditions of uncertainty can increase risks and erode returns in financial markets

Article Abstract:

Trading in derivatives can reduce social welfare by increasing the risks borne by derivatives traders and thereby reducing their welfare. Traders face not just risk but also uncertainty. Policymakers should determine at what point hedging and arbitrage become speculation for this is the point at which damage to the social welfare can result. Speculation is by its very nature a zero-sum game.

Banking industry, Financial services industry, Financial services

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