2 - Economic Definitions of Common Derivatives

Summary

Before analyzing how technological innovation has changed the financial markets, one must obtain a basic understanding of some terms and concepts that are necessary to understand these markets in the first instance. As mentioned in the Introduction, the United States has two market regulators: the Commodity Futures Trading Commission (CFTC) and the Securities and Exchange Commission (SEC). In deciding to have two market regulators, Congress established a framework in which the SEC oversees the markets for securities, which include stocks in companies, as well as bonds, government securities, and even stock options and other types of derivatives that are considered to be securities under US law. The CFTC, on the other hand, governs the markets for futures contracts, commodity options, swaps, and other derivatives that the law does not categorize as securities. Some have criticized the fact that the United States has two market regulators, as opposed to one consolidated regulator for both securities and futures markets.