Regulatory Tools – Key to Market Efficiency

Mankind's quest for markets that can meet the challenge of an unpredictable future with limited resources ended up in derivative markets, which provides all the stakeholders equal access to spread their risks thinly into the economy. Until the negative impact of the financial crisis on them was experienced, the boom in the business of exchange-traded marketplaces blinded both regulators and stakeholders in developed economies from possible pressure points that these markets could come under, leading to undesirable impact on the real economy. Post-crisis, regulatory tools of derivative markets have found a renewed attention. Though they are critical to maintaining market discipline and its healthy development, the tools can also be a big hindrance to the normal functioning of markets if not used judiciously. Therefore, a judicious use of an optimal mix of various regulatory tools would not only help these markets to efficiently function but also help effectively serve their stakeholders. Also, real-time, one-point coordination among all regulators at the international level – rather than regulation in isolation across scattered geographies – maybe the panacea to keep healthy the world of interconnected financial markets