Derivatives: Making Sense of Where We Are
The world of derivatives is in a purgatory state--a prolonged holding pattern until regulators finally finish new rules that will govern how they will be sold, traded, valued, cleared and reported. Regulators and financial institutions in the industry have dragged their feet in annoying, painstaking ways. What will eventually happen to how they will be traded? How will be big banks respond? What will they do? When will the industry decide? How will banks compensate for the billions in revenues that could evaporate when the derivatives playing field is re-landscaped? The stories have been told often over the years how derivatives markets have surged and soared, how derivatives have become a market of trillions (measured by the "notional" or face value of the derivatives traded globally). The credit-default-swaps market is said to be over $25 trillion. (That would be "notional" face value, not actual market value or market outstandings.) The story is also to...