Copyright (c) 1995 Duke Journal of Comparative & International Law
Duke Journal of Comparative & International Law
NOTE: PRUDENCE OR PARANOIA: CONSIDERING STRICTER REGULATION OF THE INTERNATIONAL OVER-THE-COUNTER DERIVATIVES MARKET
5 Duke J. Comp. & Int'l L. 499
Recent reports of companies and municipalities losing millions of dollars from investments in over-the-counter (OTC) financial derivatives 1 have prompted foreboding headlines about derivatives, 2 encouraged increased scrutiny of their use, 3 and polarized opinions toward these misunderstood financial instruments. 4 While OTC and exchange-traded derivatives have many features in common, most of the debate concerning derivatives and most of the recent losses in derivatives activities have been related to OTC contracts. 5 The spectacular growth of the OTC financial derivatives market in the past few years, 6 evidenced by figures measuring principal amounts of outstanding derivatives in the trillions of U.S. dollars, 7 has added to the debate. There is a growing fear that the global linkages common to derivatives could contribute to a worldwide failure of financial markets. 8 In response, legislators and regulatory agencies worldwide have formulated various proposals aimed at controlling OTC derivatives activity. 9
The cry for regulatory change has been especially pronounced in the United States, where the majority of OTC derivatives transactions are based. 10 A recent report by the U.S. General Accounting Office (GAO) concluded that sweeping regulatory changes are needed to guard against the potential dangers posed by OTC derivatives. 11 Other commentators have downplayed the risks of derivatives, suggesting that the current regulation of derivatives is sufficient. 12 Because the United States is the world leader in derivatives, 13 other countries with large derivatives markets are following American events carefully. Any ...
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