The Swap and Futures market will expand in rapid growth if it is de-centralised than when it is not, which depends on the capitalisation of the local markets, the cost of interests where competition will drive costs down.
In finance, a swap is a derivative in which counterparties exchange cash flows of one party’s financial instrument for those of the other party’s financial instrument. The benefits in question depend on the type of financial instruments involved. For example, in the case of a swap involving two bonds, the benefits in question can be the periodic interest (or coupon) payments associated with the bonds. Specifically, the two counterparties agree to exchange one stream of cash flows against another stream. These streams are called the legs of the swap. The swap agreement defines the dates when the cash flows are to be paid and the way they are calculated. Usually at the time when the contract is initiated at least one of these series of cash flows is determined by a random or uncertain variable such as an interest rate, foreign exchange rate, equity price or commodity price.
The cash flows are calculated over a notional principal amount. Contrary to a future, a forward or an option, the notional amount is usually not exchanged between counterparties. Consequently, swaps can be in cash or collateral.
Swaps were first introduced to the public in 1981 when IBM and the World Bank entered into a swap agreement. Today, swaps are among the most heavily traded financial contracts in the world: the total amount of interest rates and currency swaps outstanding is more thаn $347 trillion in 2010, according to Bank for International Settlements (BIS)
The Global Financial markets will change, where there will be different exchanges for equities, bonds, derivatives and futures, each having a local flavor but will be linked together worldwide eg Japan, London, US, China, Singapore each have their own exchanges dealing with different instruments, there will be an option to raise funds or trade in different markets, where it is different from the structure of present markets where it may not be efficient to cater to the needs of the diverse markets, the future is each exchanges control their own but co-operate to access other markets, nobody likes to be under an obligation where the local laws do not apply, as it is too complicated to apply for jurisdiction to cover every markets. If there are disputes it will be a big problem for arbitration, if UN is asked to solve all these problems at the highest courts, there will be no time or resources to do anything else. Likewise it is the same for Maritime Laws if you are able to group together in a region, it may simplify things. Those markets that do not have volume will combine to have a central Financial market in the region. At the end it is those who enjoy economies of scale and could cater to demand will enjoy brisk business.
– Contributed by Oogle.