Hello peeps,
I was looking at the regulations of a country regarding derivative trading for banks.
The regulators mention, at the start of the regulation, that derivative transactions for customers should be done only on the basis of valid underlying transactions, and not for the purpose of speculation.
However, in a later section, they mention that banks can engage in “non-market maker” transactions. They have defined this as instances where banks engage in transactions with the intention of making a spread.
So what I’m assuming here is that banks are allowed to engage in speculative trading (for the purpose of making a profit), but customers are not.
From how I see it, this seems somewhat strange because, in this country, banks are the biggest players in the derivatives market, and for them to be allowed to do speculative trading seems strange. Did I understand this right?
Also, they mention that, in the event that customers want to prematurely terminate a derivative contract, they should bear the loss, but if there is a mark-to-market profit, the customer can’t be allowed to take it, but has to re-book the derivative transaction. Is this fair by the customer?
Thanks for your input!