Question

Derivatives have been the cause of some major financial crises over the last decade. What measures have been taken during that timeframe to move toward better control and regulation of OTC derivative markets?

Answer 1

Several new rules and regulations have been enacted to manage OTC derivative market. The participants are now required to provide higher collateral, which helps mitigate the risk to the central system. The role of CCPs has also been enhanced to ensure better risk management. Further, the standard transactions between financial institutions are required to be carried though electronic platforms. This requirement ensures transparency as well as speed of the transaction. The price transparency is of utmost importance to save market participants from frauds and price anomalies.