Editing Derivative (finance) (section)

===Over-the-counter derivatives===
[[Over-the-counter (finance)|Over-the-counter]] (OTC) derivatives are contracts that are traded (and privately negotiated) directly between two parties, without going through an exchange or other intermediary. Products such as [[swap (finance)|swaps]], [[forward rate agreement]]s, [[exotic option]]s – and other [[exotic derivative]]s – are almost always traded in this way. The OTC derivative market is the largest market for derivatives, and is largely unregulated with respect to disclosure of information between the parties, since the OTC market is made up of banks and other highly sophisticated parties, such as [[hedge fund]]s. Reporting of OTC amounts is difficult because trades can occur in private, without activity being visible on any exchanges

According to the [[Bank for International Settlements]], who first surveyed OTC derivatives in 1995,<ref name=BIS2007>{{cite report |author1=Ryan Stever |author2=Christian Upper |author3=Goetz von Peter |title= BIS Quarterly Review |publisher=Bank for International Settlements |date=December 2007 |url=http://www.bis.org/publ/qtrpdf/r_qt0712.pdf }}</ref> reported that the "[[gross market value]], which represent the cost of replacing all open contracts at the prevailing market prices,&nbsp;... increased by 74% since 2004, to $11 trillion at the end of June 2007 (BIS 2007:24)."<ref name="BIS2007" /> [[Position (finance)|Positions]] in the OTC derivatives market increased to $516 trillion at the end of June 2007, 135% higher than the level recorded in 2004. The total outstanding notional amount is US$708 trillion (as of June 2011).<ref name="afgh">BIS survey: The [[Bank for International Settlements]] (BIS) semi-annual [http://www.bis.org/publ/otc_hy1111.pdf OTC derivatives market report], for end of June 2008, showed US$683.7 trillion total [[Notional amount|notional amounts]] outstanding of OTC derivatives with a [[gross market value]] of US$20 trillion. ''See also [http://www.bis.org/publ/otc_hy1111.htm Prior Period Regular OTC Derivatives Market Statistics]''.</ref> Of this total notional amount, 67% are [[interest rate derivative|interest rate contracts]], 8% are [[Credit default swap|credit default swaps (CDS)]], 9% are foreign exchange contracts, 2% are commodity contracts, 1% are equity contracts, and 12% are other. Because OTC derivatives are not traded on an exchange, there is no central counter-party. Therefore, they are subject to [[Credit risk#Counterparty risk|counterparty risk]], like an ordinary [[contract]], since each counter-party relies on the other to perform.