What does this Practice Note cover?

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, with focus 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 derivatives are traded

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