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Controling Derivatives

This blog is a way to learn the needed basic understanding  of the  the finance world which affects our paychecks, retirement and communities. I’ll try to  share the ongoing learning process lets hope the results benefits us all those who are eager to learn a little mores. Am pro industry, pro corporation( the workers and community) and excellence in leadership certainly convinced by the severity of the recent crash about a minimun due diligence and vigilance.

FTSE 100 4,468 -0.31% € per £ 1.14 0.00%
S&P 903.47 -0.51% $ per £ 1.58 +0.11%
HANG SENG 17,337 -0.80% ¥ per $ 94.38 -0.52%
DAX 5,039 +1.60% WTI Crude 61.47 -0.92%

The salmon colored pages of Financial Times (page 7, wed/may/20/09) dedicated an entire page to Derivatives and the US administration tackling what many believe precipitated the global crisis. The article focused on a reality to be confronted and that is that Derivatives are very lucrative. Although the US administration in a short term strategy to contain the crisis with stress tests and loans derivatives are heavily used in British banks and they are outside the jurisdiction of American financial regulatory bodies.

F.T. reports that Mr. Geithner proposes:

  1. Demand all “standardised” derivatives to be centrally cleared to remove counterparty risk, even if they are not traded in the exchange.
  2. Encourage the industry to use regulated exchanges in addition to clearing platforms (because it is only the exchanges that investors get equal access to trading and price data, rather than to rely on a small club of dominant banks).
  3. The US Administration wants all institutions to record every derivative trade to enable supervisors to prevent  market abuse.
  4. Tighten the rules on capital and collateral provision to ensure all derivatives players have buffers to absorb any loses.

In a global economy the cooperation of Brussels (EU),  London and Asian bankers should not be  assumed and that bankers across both oceans are willing to let go of those profits, lack of transparency has benefits to the positions the bankers can take while trading over the counter. . Distribution of OTC (Over The Counter) derivatives as average daily turnover in 2007: UK-$2,105b  US-$959b  Japan-$226b  Singapore-$210b  Switzerland-$206b.

The risks to be reckoned with For the last nine years, since we had the Commodity Futures Modernization Act, there’s been a presumption that the OTC  derivatives markets–those are the markets which are occurring off exchanges–were more or less outside the purview of any single regulatory authority. Banks who took part in those markets might be regulated because they were banks. But the products themselves were not regulated, and institutions such as hedge funds, which were active in the OTC market, were often not regulated in those trades almost at all.

Crude oil. Nymex June West Texas Intermediate rose during the week to a six-month high of $60.08 a barrel, but yesterday moved back to $56.34, down $2.28 on the day and 3.9 per cent on the week.

COMMODITY FUTURES

VALUE CHANGE % CHANGE
Oil 61.41 -0.63 -1.02
Gold 942.40 5.00 0.53
Natural Gas 3.95 -0.02 -0.48
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