The derivatives market has recently attracted more attention against the backdrop of the fifi nancial crisis, fraud cases and the near failure of some market participants. Although the fifi nancial crisis has primarily been caused by structured credit-linked securities
that are not derivatives, policy makers and regulators have started to think about strengthening regulation to increase transparency and safety both for derivatives and other fifi nancial instruments.


This paper aims to contribute an objective and fact based foundation to the ongoing debates concerning the global derivatives market. Chapter 2 defines derivatives as a category of financial instruments and explains their benefifi ts. It looks at the market’s
development and functions and the role of European players. It then elaborates on the derivatives trading value chain and discusses the differences between OTC and on-exchange derivatives trading. Chapter 2 concludes with a review of competitive dynamics in the derivatives market. Chapter 3 discusses and as sesses the prerequisites for a well-functioning derivatives market that benefifi ts its users and the economy: effective risk mitigation, innovation and effifi ciency. Chapter 4 draws overall conclusions.