OTC Derivatives Reform In Europe

Background

Over-the-counter ("OTC") derivatives contracts have long been viewed as the domain of sophisticated professional investors such as large corporate entities, institutional investors and financial institutions. As such, historically the OTC market has been only lightly regulated, the assumption being that professional investors are sufficiently aware of the risks associated with their various transactions and that such investors have a vested interest in effectively hedging their exposures.

Events since the near-collapse of Bear Stearns and the bankruptcy of Lehman Brothers have raised questions as to whether the OTC derivatives market should be allowed to continue to self-regulate and there is currently a global move towards improving regulatory and supervisory knowledge of, and transparency in relation to, the OTC derivatives market.