The CFMA explicitly prohibited the SEC and CFTC from regulating the over-the-counter (OTC) swaps markets, but provided the SEC with antifraud authority over “security-based swap agreements,” such as credit default swaps. ![]() In 2000, Congress passed the Commodity Futures Modernization Act (CFMA) to provide legal certainty for swap agreements. Some common types of derivative structures include: OTC derivatives generally have greater risk for the counterparty than do standardized derivatives. OTC derivatives constitute the greater proportion of derivatives in existence and are unregulated, whereas derivatives traded on exchanges are standardized. Interest rates and market indexes.ĭerivatives can be traded privately (over-the-counter, OTC) or on an exchange. The most common underlying assets include stocks, bonds, commodities, currencies. Its value is determined by fluctuations in the underlying asset. The derivative itself is a contract between two or more parties based upon the asset or assets. A derivative is a security with a price that is dependent upon or derived from one or more underlying assets. ![]() Financial derivatives are used for two main purposes to speculate and to hedge investments.
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