21st century finance cannot do without a sound regulation of the OTC derivatives markets

OTC derivatives were quite rightly signaled out for their role in triggering and propagating the financial crisis. Admittedly, they can give rise to risk, regulatory arbitrage, complexity, and even financial system instability. However, they also contribute to the fi nancing of the economy and to the smooth functioning of markets. Therefore, in order to retain the benefi ts and mitigate the risks, these products must be regulated appropriately. This regulation must not focus solely on prudential issues. The market regulator must play a role in establishing a renewed regulatory framework for these markets. The latter must be more transparent and their very organisation must evolve. The Committee of European Securities Regulators (CESR) has proposed a roadmap based on the three-fold approach of standardisation, clearing, and creation and registration of the corresponding market infrastructures. In addition, an even more ambitious overhaul should be considered of the national and European regulatory frameworks whose contours were designed before the explosion in derivatives trading volumes took place. They must now incorporate this new dimension of modern markets.