With the arrival of the new year, derivatives market participants around the globe are taking stock of a tumultuous 2009 and asking what new regulatory changes could occur in this year to address the perceived deficiencies that led to the collapse of financial markets in 2008. Participants in the over-the-counter (OTC) derivatives markets are hopeful that with the adoption of new legislation, some of the regulatory uncertainty in this market will be clarified and that the market will become less opaque. At the same time, there is much concern and apprehension that proposed legislation might unduly restrict the use of OTC derivatives products that have proven to be a cost-effective means of managing risk on both Wall Street and Main Street.

Through much of 2009, the U.S. Congress debated legislative proposals aimed at reforming the financial system that could dramatically change the way the OTC derivatives industry operates. These proposals may take final form in 2010 and, if enacted, will initiate a new regulatory regime to govern previously lightly regulated OTC transactions. To understand the impact of these changes and to anticipate their ramifications to existing risk management practices, participants in the OTC derivatives market should familiarize themselves with the current legislative landscape.