Finance Crisis And Its Effects On The Financial Crisis

1841 Words8 Pages
After the breakout of finance crisis, leaders of the G-20 vowed to take control of the derivative market and finally pass the BASEL III. All the participants including the bank, speculators, exchange platform and institutions, regulators, the offices, political leaders and the households who had a harmful effect from the financial crisis require the reassurance for such a crisis to never occur again. Society as a whole suffered a loss from it, because the wide spread fear and constraint of consumption resulted in higher than expected rates of unemployment, deflation was expected and occurred drastically. Investment was strained down significantly. There are both counterparty and transparency risks that contributed to the derivative…show more content…
For individual speculators and the managers of financial firms, they have incentives to increase profit where they prefer more risk investment when counterparties and others obey the rules to keep a sustainable marker. Therefore, the transparency policy had been implemented to expose more information around prices and volumes combined with the standardising policy of derivatives contracts, which also increase market efficiency and liquidity. The main regulations introduced are as follows: • Greater standardisation of OTC derivatives contracts: Greater standardisation would enhance the efficiency of operational processes; facilitate the increased use of central counterparty (CCP) clearing and trading on organised trading platform to support greater comparability of trade information. By working with international regulators and the industry to take steps in identifying and agreeing which products can be further standardised, both in terms of underlying contract terms and operational processes where this must be implemented on a timely basis. • More robust counterparty risk management. All OTC derivative trades, whether or not centrally cleared, should be subject to robust arrangements to mitigate counterparty risk. For all financial firms this should be through the use of CCP clearing for clearing eligible products. For trades which are not centrally cleared these should be subject to robust bilateral collateralisation arrangements and appropriate risk capital
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