Regulation of exchange-traded derivatives

What are exchange-traded derivatives

Exchange-traded derivatives (ETDs) are derivative contracts which have been entered into through an exchange. The exchange enables the entering into of offsetting derivative contracts by market participants. It provides a forum where a relatively limited range of futures and options can be traded on standard terms.

Trading derivative contracts on the exchange requires those contracts to have highly standardised terms and conditions to ensure that they can be matched on the exchange. Unlike over-the-counter (OTC) derivative contracts which can have bespoke terms, ETDs are generally inflexible as to the choice of underlying assets, maturity, size of contract, terms of delivery and other terms. The standardised nature of ETDs helps to ensure their liquidity and price competitiveness.

All ETD contracts are cleared through a central counterparty (CCP), also known as a clearing house.

When an ETD is entered into, each of the counterparties is exposed to the risk that the other counterparty will fail to meet its obligations under the ETD (counterparty