Treasury Report Warns On Volatility, Says Derivatives Too Opaque

A Treasury Department report from the Office of Financial Research is sending a similar warning about increased volatility as is the U.S. Federal Reserve along with a recent Royal Bank of Scotland report.

Affects of wild temporary price swings

As fewer trading partners are willing to make markets and create liquidity, a key concern cited in the RBS report, markets could face challenges during crisis as more sellers than buyers (or vice versa) could create wild temporary price swings. Further, challenges from algorithmic trading could exacerbate negative price movements, the OFR’s third annual report noted.

The report addressed the recent...