Derivative Structures
This article was edited and reviewed by
FindLaw Attorney Writers | Last
updated March 26, 2008
Defining the scope of the law as it
relates to derivatives is difficult given
the extent of the market, the variety of
market participants and the paucity of
jurisprudence related to derivatives.
Derivatives take two forms: (i)
exchange-traded derivatives, which
are traded on recognized exchanges,
and (ii) over-the-counter ("OTC")
derivatives, which are privately
negotiated and customized bilateral
contracts under which two parties
agree to complete transactions
specific to the parties, the obligations
under which may only be transferredRegulating Trades in Derivatives
In Canada, the regulation of exchange-
traded derivatives is the responsibility
of the provinces and falls within the
jurisdiction of provincial securities
commissions. For example, in Ontario,
the Commodity Futures Act ("CFA")
regulates all commodity futures
contracts trading on commodity
exchanges. The CFA also provides for
the registration of traders in
commodity futures contracts. In
respect of the OTC derivatives market,
debate with respect to the need for
regulation has focused on the
expansion of the market into all
sectors of the economy and the use of
OTC derivatives by less sophisticated
parties.Other elements of the definition of
"accredited investor" that are
applicable in the OTC derivatives
context include: (i) a company, limited
liability company, limited partnership,
limited liability partnership, trust or
estate, other than a mutual fund or
non-redeemable investment fund, that
had net assets of at least $5 million
as reflected in its most recently
prepared financial statements; and (ii)
a mutual fund or non-redeemable
investment fund that, in Ontario,
distributes its securities only to
persons or companies that are
accredited investors.- A transaction must provide risk
management services, a financial
service, to a counterparty or to
manage an FRFI's risk; and
* FRFIs may only take title to the
commodity for the purpose of
facilitating the transaction and
not for the purpose of proprietary
trading.
Additionally, OSFI required FRFls that
wished to engage in PSC derivatives-
trading to put in place risk
management policies to mitigate the
risks associated with taking transitory
title to commodities in the course of
trading PSC derivatives.> Key Trends in the Size and Composition of OTC
Derivatives Markets in the First Half of 2021
Research Notes isa
Key Trends in the Size and
Composition of OTC Derivatives
Markets in the First Half of
2021
ner
Bank for International Settlements (BIS), Initial Margin,
Interest Rate Derivatives, OTC Derivative
December 6, 2021
The latest data from the Bank for
International Settlements over-
the-counter (OTC) derivatives
statistics shows a significant
decrease in the gross market
value and gross credit exposure of
interest rate derivatives (IRD) and
foreign exchange derivatives
during the first half of 2021
compared to the first half of 2020
and year-end 2020. This decline
represents a return to pre-
pandemic levels and was driven
by a less uncertain
macroeconomic outlook.Key highlights include:
¢ OTC derivatives notional
outstanding increased by
0.5% at mid-year 2021
compared to mid-year 2020
and grew by 4.8% compared
to year-end 2020.
The gross market value of
OTC derivatives contracts at
the end of June 2021 was
18.5% lower than mid-year
2020 and 20.1% lower than
year-end 2020.
Gross credit exposure - gross
market value after netting -
decreased by 15.3%
compared to mid-year 2020
and by 19.4% compared to
year-end 2020.