On the inception of sound derivative products in emerging markets. Real‐world observations and viable solutions
| Published date | 01 April 2006 |
| Date | 01 April 2006 |
| DOI | https://doi.org/10.1108/13581980610659468 |
| Pages | 151-164 |
| Author | Mazin A.M. Al Janabi |
| Subject Matter | Accounting & finance |
FEATURE ARTICLE
On the inception of sound
derivative products in emerging
markets
Real-world observations and viable solutions
Mazin A.M. Al Janabi
School of Business Administration, Al Akhawayn University in Ifrane,
Ifrane, Morocco
Abstract
Purpose – Since, the early 1990s, emerging markets have started to play an important role in the
trading of derivatives products. Despite the fact that these markets are characterized in general as
illiquid, segmented, politically unstable, with lack of regulations and historical financial databases,
they do have some advantages for markets’ participants. This paper aims to discuss some of the main
obstacles to the inception of successful derivative products in emerging economies and to provide a
number of viable solutions.
Design/methodology/approach – The objective of this paper is to share with financial markets’
participants, regulators and policymakers some of the author’s real-world experiences and
observations as a derivatives trader and later as a trading risk manager in emerging economies.
The endeavor here is to provide several robust guidelines that can assist emerging markets in the
establishment of sound derivative markets within a prudential framework of rules and policies.
Findings – To this end, key risk management rules and procedures that should be considered before
dealing with derivative products are examined and adapted to the specific needs of emerging markets.
The suggested viable solutions can be implemented in almost all emerging economies, if they are
adapted to correspond to each market’s initial level of sophistication.
Practical implications – The real-world guidelines and observations that are discussed in this
work will be of value to financial entities, regulators and policymakers operating within the context of
emerging markets.
Originality/value – This paper fills a gap in the risk management literature, especially from the
emerging markets perspective, by providing a practitioner’s views on how to set-up sound and
effective derivative products markets in emerging economies. The paper will be of value to those
interested in founding a successful and sound trading environment of derivative products in emerging
markets.
Keywords Derivative markets,Emerging markets, Financial engineering, Financialinstitutions,
Financial risk,Government policy
Paper type Viewpoint
1. Introduction and overview
The global deregulation of financial markets has created new investment
opportunities, which in turn require the development of new instruments to cope
The current issue and full text archive of this journal is available at
www.emeraldinsight.com/1358-1988.htm
The author of this paper would like to acknowledge Dr Lynne Ronesi, American University of
Sharjah, for her comments and valuable inputs.
Inception of
sound derivative
products
151
Journal of Financial Regulation and
Compliance
Vol. 14 No. 2, 2006
pp. 151-164
qEmerald Group Publishing Limited
1358-1988
DOI 10.1108/13581980610659468
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