CFA Level I · CFA Level I Exam · Derivative Instrument and Derivative Market Features
Regarding the regulation and transparency of derivative markets, which statement is most accurate?
Exchange-traded derivatives are generally more regulated and more transparent than traditional OTC derivatives, because prices and volumes are publicly reported. OTC trades are privately negotiated and less visible, so the other statements describe the markets incorrectly.
- AExchange-traded derivatives are generally more regulated and more transparent in pricing than traditional OTC derivatives.Correct
- BTraditional OTC derivatives publish all trade prices on a central exchange order book.
- CExchange-traded derivatives are lightly regulated because contract terms are negotiated privately.
Explanation
Exchanges operate under regulatory oversight and publish prices and volumes. Traditional OTC trades are private and less transparent, and privately negotiated terms describe OTC rather than exchange contracts.
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