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Any regulating move to limit positions is only serving to rectify the symptoms, and not the root causes. Actions must also be taken to curb the venues which allow artifical Values from being created and blown out of proportion. On this count, the Price Discovery Processes are venues for such abuses. Physical, OTC-swaps, and Futures
markets are all important for proper market definitions. However they are also with definitive roles. Actions must be laid down so that the derivatives should always be bounded by the other two markets, ie the spot physicals and the futures.Checks and Balances will be lost if derivatives prodominantly drive the markets, without bounds. Sadly this is the situation today, in the price discovery processes & methodologies. If this artifical value creation is not checked, the next bubble will be near.
Posted by: TH Tan
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Risk indicators for structured products
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