Globalization and technological advances have also significantly impacted derivatives markets since 1990. What are the benefits and risks of these changes? How can government authorities or the financial professions take additional actions in this area?I need an expert that can answer this question in another way than the answer on this site!
"Globalization has meant that capital from many parts of the world can flow to write and purchase derivatives related to a myriad of securities, real-options. It means not only exchange traded derivatives can be used by global investors, but the OTC market and customization market can also get participants with many different risk-return preferences and size.
Technological advancement means price-information gets disseminated all over the world in a few seconds. Also, trade execution in certain markets takes place within an ultra-short span of placing an order.
The benefits of these changes are more efficient markets, more transparent risk-pricing and more complete markets.
The risks are that markets become very volatile, increase in size of derivatives markets means any contagion can spillover to other financial markets or even real economy.
Governments should put in place mechanisms which ensure that small investors do not suffer from any market rigging by large players. Central banks should keep excess volatility and liquidity in check. Government should ensure that defaults are adequately punished for and the system does not imbibe moral hazard."