Derivative

According to IAS (39.9), a financial instrument or other contract that contains all of the following three characteristics: – the value of the contract changes as a result of changes in a specified commodity price, interest rate, foreign currency exchange rate or other variable, called the underlying or underlying (financial contract the value of which depends on the value of one or more underlying reference assets, rates or indices, on a measure of economic value or on factual events, such as weather conditions);- the contract requires no initial payment or an initial payment that is less than the initial payment for other contracts that are similarly responsive to changes in market factors; and – the contract will be settled in the future. – The underlying object of the contract is called the underlying [asset] or reference base. – The reason for the great attraction of derivatives is that the investor speculates with a much lower capital investment than when buying or selling the underlying assets. If he decides in favor of a derivative, he can achieve a relatively large (capital) return with a comparatively small (capital) outlay. In this context, one speaks of a leverage effect. – Derivatives complete the financial markets by making risk factors tradable. On the other hand, derivatives make it increasingly difficult for central banks to accurately track the money supply. Between 1997 and 2006, the global derivatives market increased tenfold. In the wake of the subprime crisis, however, the derivatives market collapsed because many of these securities were no longer transparent in terms of their risk content. As a result, newly issued derivatives had to be made more transparent in order to find new buyers. – The Act Implementing the Markets in Financial Instruments Directive and the Commission’s Implementing Directive (Financial Markets Directive Implementation Act [FRUG]) of July 16, 2007 defines: “Derivatives within the meaning of this Act are – 1. Fixed transactions or option transactions structured as a purchase, exchange or otherwise, which are to be fulfilled with a time delay and whose value is derived directly or indirectly from the price or measure of an underlying asset (forward transactions) with reference to the following underlying assets: – a) securities or money market instruments, – b) foreign currencies or units of account, – c) interest rates or other yields, – d) indices of the underlying assets of letters a, b or c, other financial indices or financial measures, or – e) derivatives; – 2. Forward contracts relating to commodities, freight rates, emission allowances, climate or other physical variables, inflation rates or other economic variables or other assets, indices or measures as underlying assets, provided that they – a) are to be settled in cash or give a contracting party the right to require cash settlement without such right being established by default or other termination event, – b) are concluded on an organized market or in a multilateral trading facility, or – c) are concluded in accordance with Article 38 para. 1 of Commission Regulation (EC) No. 1287/2006 of 10 August 2006 implementing Directive 2004/39/EC of the European Parliament and of the Council as regards record-keeping obligations for investment firms, transaction reporting, market transparency, admission of financial instruments to trading, and defined terms within the meaning of that Directive (OJ EU No. L241 p. 1), have characteristics of other derivatives and serve non-commercial purposes and the conditions of Article 38 para. 4 of this Regulation, and provided that they are not spot transactions within the meaning of Article 38 (2) of Regulation (EC) No. 1287/2006; – 3. financial contracts for differences; – 4. fixed transactions or option transactions structured as a purchase, exchange or otherwise, which are to be performed on a deferred basis and serve to transfer credit risks (credit derivatives); – 5. forward transactions with reference to the underlying assets referred to in Article 39 of Regulation (EC) No. 1287/2006, provided that they meet the conditions of Number 2.” – See settlement department, equity certificate, bond, bull-bear related, underlying, call, cap, chooser cap, contingent swap, denomination, derivative transactions, bilateral, derivatives clearing obligation, derivatives information obligation, derivatives code, financial architecture, financial instruments, money supply, IAS 39, index bond, financial instruments information sheets, credit derivative, commodity forward contract, overnight rate swap, weather derivative, certificate, interest rate option, interest rate swap. – Cf. also § 2, para. 2 WpHG as well as the definitions and classifications in the ECB’s Monthly Report of May 2000, p. 42, BaFin’s Annual Report 2004, p. 177 (Derivateverordnung [DerivateV] of February 2004; refined risk measurement also prescribed here), BaFin’s Annual Report 2009, p. 17 (mandatory settlement of over-the-counter derivatives transactions via central counterparties), p. 42 (OTC derivatives, p. 112 (accounting rules), Deutsche Bundesbank Monthly Report of August 2005, p. 39 (very long maturities), Deutsche Bundesbank Monthly Report of July 2006, p. 55 et seq. (detailed presentation with overviews, with a focus also on the impact of derivatives on the stability of the financial system), BaFin Annual Report 2010, p. 46 (supervision of OTC derivatives), Financial Stability Report 2011, p. 43 f. (opacity of OTC trading in general and of over-the-counter derivatives markets in particular), BaFin Annual Report 2011, p. 41 (regulation of OTC derivatives), Financial Stability Report 2012, p. 92 ff. (over-the-counter derivatives market since 2003; regulatory issues), ECB Annual Report 2012, p. 134 (recast of the Markets in Financial Instruments Directive), BaFin Annual Report 2013, p. 163 (new requirements for OTC derivatives transactions through the amended DerivateV).

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University Professor Dr. Gerhard Merk, Dipl.rer.pol., Dipl.rer.oec.
Professor Dr. Eckehard Krah, Dipl.rer.pol.
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