More regulation of derivatives is covered by the Dodd-Frank recent legislation. whereby trades will have some form of collateral and will include margin.
What was transacted in the past obviously did not work satisfactorily for Washington. But then, there was little regulation, nor collateral required.
Derivatives are essential to trading of securities for any orderly financial securities market. Derivatives are financial instruments derived from other assets. instead of trading that asset itself. One basic example is a futures contract, an agreement to exchange an underlying asset at a future date.
Derivatives are leveraged, so that a small movement in the underlying value can cause a large difference in the value of the derivative.
They can be used to speculate for profit or to hedge in order to reduce risk in that underlying asset.
I always wonder how practical these bureaucratic regulatory efforts are, as the nature of derivatives may make such restrictions too binding to be effective.
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