OTC and exchange traded derivatives—key features and concepts
OTC and exchange traded derivatives—key features and concepts

The following Banking & Finance guidance note provides comprehensive and up to date legal information covering:

  • OTC and exchange traded derivatives—key features and concepts
  • Introduction
  • Key concepts
  • Key features of non-cleared OTC derivatives, ETDs and cleared OTC derivatives
  • Increasing importance of cleared OTC derivatives
  • Parties involved
  • Products
  • How derivatives are traded

BREXIT: The UK is leaving the EU on Exit Day (as defined in the European Union (Withdrawal) Act 2018). This has an impact on this Practice Note. For guidance, see Practice Note: Brexit—impact on finance transactions—Key issues for derivatives transactions and Brexit—impact on finance transactions—Derivatives and debt capital markets transactions—key SIs.

Introduction

There are two broad types of derivatives:

  1. over the counter (OTC) derivatives, and

  2. exchange traded derivatives (ETDs)

OTC derivatives may be sub-divided into:

  1. non-cleared OTC derivatives, and

  2. cleared OTC derivatives, which have features in common with both non-cleared OTC derivatives and ETDs

This Practice Note:

  1. explains some of the key concepts underlying non-cleared OTC derivatives, ETDs and cleared OTC derivatives

  2. describes the key features of the three types of derivatives

  3. explains the reasons for the increasing importance of cleared OTC derivatives, and

  4. explains and compares the three types of derivatives, focussing on:

    1. the parties to each type of derivative

    2. the sub-types of derivatives, or derivative products, which can be entered into in non-cleared OTC, ETD and cleared OTC form, and

    3. the ways in which the three types of derivative are traded

Practice Note: OTC and exchange traded derivatives—documentation further explains and compares non-cleared OTC derivatives, ETDs and cleared OTC derivatives, focussing on:

  1. the ways in which the three types of derivative are documented

  2. the ways in which parties