The Post-Reform Guide to Derivatives and Futures

by Gordon F. Peery

An in-depth look at the best ways to navigate the post-reform world of derivatives and futures The derivatives market is one of the largest, and most important financial markets in the world. It's also one of the least understood. Today we are witnessing the unprecedented reform and reshaping of this market, and along with these events, the entire life cycle of a derivatives transaction has been affected. Accordingly, nearly all market participants in the modern economy need to view the handling of risk by derivatives in a very different way. Many aspects of financial services reform are based on a belief that derivatives caused the Great Recession of 2008. While the difficulties we now face cannot be blamed solely on derivatives, the need to understand this market, and the financial products that trade within it, has never been greater. The Post-Reform Guide to Derivatives and Futures provides straightforward descriptions of these important investment products, the market in which they trade, and the law that now, after July 16, 2011, governs their use in America and creates challenges for investors throughout the world. Author Gordon Peery is an attorney who works exclusively in the derivatives markets and specializes in derivatives and futures reform and market structure. Since representing clients in Congressional hearings involving Enron Corp., he has developed extensive experience in this field. With this guide, he reveals how derivatives law, and market practice throughout the world, began to change in historic ways beginning in 2011, and what you must do to keep up with these changes. The financial crisis has changed the rules of Wall Street, especially when it comes to derivatives and futures. The Post-Reform Guide to Derivatives and Futures will help you navigate this evolving field and put you in a better position to make the most informed decisions within it.

384 pages, Hardcover

First published January 4, 2012

Reviews

[Peter · Rating 3 out of 5]

I'm still digesting the material, but Peery does a good job explaining futures and other derivatives. In fairness to him, the material is arcane and dense, and the regulatory structure can be somewhat confusing (deliberately so). His historical explanation of the futures markets and how they evolved into the massive exchanges today, such as the CME, is fascinating.

This is not the book to read for an in-depth explanation of the hard mathematics behind derivatives and swap agreements. To his credit, Peery does well to focus on the legal structures, entities, and documents governing derivatives, such as ISDA Master Agreements for swaps. At this time, even though Dodd-Frank was enacted in 2010, many of the implementing regulations (up to 60 % by one account) have yet to be drafted by the SEC, CFTC, and other regulators.

Peery, who has extensive experience in structured finance, has major objections to some of the findings of the Financial Crisis Inquiry Commission. Reading the FCIC's Financial Crisis Inquiry Report would be helpful, despite its length. Although not all derivatives may have helped to trigger the crisis of 2008, it is clear that a shocking lack of transparency between counterparties due to the opaque nature of some of the agreements prevented major players, such as the Fed and other regulators, from developing an idea of the sheer scale of risk embedded in OTC derivatives, until it was almost too late. We were very lucky.