What Is An OTC Derivative?
A derivative is a contract that derives its value by reference to “something else.” That something else can be pretty much anything that can be objectively observed and measured. That said, when people talk about derivatives, the “something else” is usually an index, rate, or security. For example, an option to purchase common stock is a fairly well-known and ubiquitous derivative. So are futures for commodities such as pork belly and oil. However, these are not the kind of derivatives that Geithner is talking about. Geithner is talking about OTC derivatives, or “over the counter” derivatives. This category of derivatives includes the much maligned “credit default swap” market, as well as other larger but apparently less notorious markets, such as the interest rate and foreign exchange derivatives markets. The key defining characteristic of an OTC derivative is that it is entered into directly between the parties. This is in contrast to exchange-traded derivatives, such as options to p
Related Questions
- Can firms that have been voluntarily reporting Aii transactions as OTC derivative transactions continue to do so following the Zen implementation soft go-live date?
- Would security futures products be eligible OTC derivative instruments as defined in Exchange Act Rule 3b-13?
- How has the UK responded to U.S. and pending EU OTC derivative legislation?
