Obama is Bush part 3

Exchange-Traded Derivatives: Why Stop at CDS?

What is so "magical" about putting derivatives on an exchange? Why put any of them on an exchange?

The reason many derivatives do not already trade on an exchange is that OTC derivatives have higher profit margins -- wider bid / ask spreads at minimum, and usually the market maker knows the price while the buyer has no idea.

From the buyer's viewpoint, OTC derivatives are often off balance sheet. If you are using derivatives to **hedge** (as opposed to speculate), it doesn't necessarily make sense to inflate the balance sheet (both sides) with the business item being hedged and the hedge on the other side. Doing so makes the balance sheet appear much bigger, and can arguably distort various ratio numbers often watched by investors.

Most of the arguments for putting derivatives on an exchange boil down to this: management isn't paying attention to risk management, so the process needs to be outsourced to an exchange...

So rather than fixing the real problem, persons in management that lack the skill set to do their jobs, the markets are saying the function should be outsourced to an exchange.

What you are really arguing with your exchange idea is that we simply don't need banks to be financial intermediaries. They don't have any information advantage, they aren't better at managing risk.