What should be done to minimise disasters with derivatives?
At the level of exchanges, position limits and surveillance procedures should be sound. At the level of clearinghouses, margin requirements should be stringently enforced, even when dealing with a large institution like Barings. At the level of individual companies with positions on the market, modern risk measurement systems should be established alongside the creation of capabilities in trading in derivatives. The basic idea which should be steadfastly used when thinking about returns is that risk also merits measurement.