Alastair Darling wants reform of the derivatives market
Chancellor of the Exchequer Alastair Darling has today stepped into the debate regarding the world wide derivatives market and the need for further regulation. This is a market which is worth hundreds of thousands of billions of dollars a year but one which is relatively unregulated and can move very quickly with new instruments appearing on a regular basis. So why is the derivatives market so important?
The derivatives market is a market which broadly covers each and every investment type and tool which you can think of. Many people believe that it was the derivatives market which brought on the subprime mortgage market collapse in the US which led to the credit crunch and the worldwide recession. Many of these derivatives instruments are traded "over-the-counter" with very little in the way of regulation, control and in some cases a lack of understanding about exactly what is on offer. It is no exaggeration to say that many people who acquired mortgage bonds in the past were not always aware what they were based upon and it only became apparent when the markets collapsed as to what was really going on.
There is a need to increase monitoring of the derivatives market but whether you could argue an increase in regulations would reduce innovation in this particular field is open to debate.
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