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This chapter focuses on trading regulations. Derivative trading in financial instruments on organized exchanges consists largely of the following instruments: futures, options, options on futures, and swaps. Those transactions are differentiated from ‘cash’ transactions and ‘forward’ contracts. Forward and cash contracts are traded in over-the-counter (OTC) markets, which are generally subject to the day-to-day oversight of a government financial services regulator. Nevertheless, OTC cash and forward transactions may not entirely be free of governmental restrictions. For example, in the US, the anti-manipulation prohibitions in the Commodity Exchange of 1936 (CEA) may be applied to trading in cash and forward contracts where they are effected in order to create artificial prices. Particular OTC derivative transactions involving retail customers in foreign currency are also subject to regulation by US authorities, including the Commodity Futures Trading Commission (CFTC), the Securities and Exchange Commission (SEC), and banking regulators. The purpose of those regulations is to protect unsophisticated retail customers from fraudulent business conduct and dealer failures. Meanwhile, the trading in OTC derivatives in the EU and the European Economic Area (EEA) is regulated under the European Market Infrastructure Regulation (EMIR) as amended by EMIR Refit. |
