Regulation of Derivatives

Abstract

This dictionary entry concerns the regulation of derivative securities in the United States. Regulation of financial derivatives has focused on reducing the different risks -- credit, legal, market, and operational -- generated by derivative instruments, in contrast to the historical emphasis of the regulatory regime on market manipulation, an important issue for contracts to deliver agricultural products that are susceptible to natural shortages. The entry criticizes recent regulatory approaches to market and operational risks, distinguishes between the appropriate regulatory approach to private and public entities' participation in over-the-counter markets, and assesses common proposals to shift from the current dispersed regulatory regime to a unitary regulator.