How should derivatives be regulated?

Author: | Published: 1 Jul 2009

Elizabeth Fournier
Staff writer

According to both Warren Buffett and George Soros, credit default swaps are instruments of mass destruction that must be outlawed. And though their wording may be a little extreme, the majority of participants in this month's IFLR poll agree that harsher rules on over-the-counter (OTC) derivatives are necessary.

Despite the limits that this puts on novel products returning to the market, a surprising 54% of respondents felt that stronger regulation and transparency should take priority over allowing innovation and disseminating market risk.

Clarity please, not shackles

But, warns one lawyer, "it should be regulation to increase and codify transparency, not to prohibit or in way limit organic market innovation." Concerned that wholesale rules could prohibit derivatives so much that the market would stumble, many feel light-touch intervention that primarily aims to clarify risk is the best option.

"The main concern should not be preventing people from taking...