WASHINGTON (AP) — The U.S. government took a step toward regulating the $800 trillion derivatives market, listing transactions that would fall under new financial regulatory rules.
Derivatives are financial instruments that contributed to the 2008 financial crisis. They are used to hedge against future price fluctuations of an underlying commodity or security. But they were also used to bet against the housing market ahead of the crisis.
The Commodity Futures Trading Commission voted Tuesday to subject credit default swaps, foreign-exchange swaps and interest-rate investments to the rules, which take effect this fall.
Most types of insurance, which are also used to minimize risk, won't come under the regulations, the CFTC said. And even those on the list could be exempt if investors can show they bought them solely to hedge against risks.