Improving the regulation of the derivatives market as an objective prerequisite for sustainable development of the global financial system

Abstract

The development of financial markets is characterized by the emergence of new financial instruments, in particular derivatives, the risk level analysis of which is complicated. Counterparties are not always fully aware of and do not adequately assess the potential risks of derivatives, which may lead to large financial losses and sometimes bankruptcies. The purpose of the study is to generalize approaches to regulating derivative markets and analyse the adequacy of regulatory influence to ensure sustainable development of the global financial system. The article analyses the approaches of scientists and regulators of the USA and the EU to the regulation of the derivatives market before and after the financial crisis of 2007-2008. Prior to the crisis, most scholars took a liberal approach to derivatives market regulation and recommended monitoring new instruments and not restricting their circulation in any way, emphasizing that effective counterparty risk management and their propensity for self-preservation can prevent excessive risk-taking. The authors analyse the potential risks of derivatives and conclude that exchange-traded derivatives can cause similar processes of liquidity crisis, and, therefore, need additional regulatory tools to ensure the stability of the financial system.