Risk exists in all markets. This has caused the participants in many markets to look for ways to manage risk. One way of doing this is with derivatives. As awareness of the usefulness of derivatives as risk management tools has grown, so have markets for derivatives. Futures and options exchanges and over-the-counter derivative markets are integral parts of virtually all economies which have reached an advanced state of economic development. These markets will be important parts of many other economies as they move into more advanced stages of development.
There are many similarities and many differences in the various derivative markets around the world. One of the similarities is that all derivative exchanges operate under some form of governmental regulation. The purpose of this report is to provide some guidance on the appropriate regulatory approach to those countries which are developing or plan to develop derivatives markets.
Six countries which have recently developed or which are actively engaged in developing derivatives markets have provided reports on their experiences and plans in this regard. These documents reveal great similarities in the general approach to regulation. Underneath these similarities there are substantial differences in many specific areas, but these differences primarily reflect different ways of attempting to achieve the basic goals of financial regulation. They also reflect some differences in regulatory philosophy, particularly with respect to the role of self-regulation in achieving the regulatory goals.
