Testing the derivative depths

The global over-the-counter derivatives market is vast, opaque, potentially destructive and dominated by a handful of institutions. But bringing it out of the shadows to regulate won't be easy or risk-free either.

Given the traumatic shocks to the global financial system triggered by the collapse of Lehman Brothers in 2008, it sounded like a good idea to bring the trading of over-the-counter derivatives out of the shadows of the system and into the sunlight. The concept, however, appears to be easier to articulate than execute.

Last week the Australian Council of Financial Regulators produced a report on its proposed reforms of the OTC derivatives market, following up a discussion paper issued in the middle of last year. Not that much progress appears to have been made.

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