Regulators, please adjust the rules to preference the underlying markets, not the derivatives markets
There is a fundamental liquidity problem in financial markets with a conceptually easy fix. The problem is that regulators have accidentally preferenced the use of derivatives over physical financing transactions for banks. We proved this out in a December 2015 research report, and it is evident from the strength of the listed and OTC derivatives markets compared with the high volatility and relative lack of liquidity in underlying markets. Regulators, the markets need your help.