Crises to Opportunities: Derivatives Trading, Liquidity Management, and Risk Mitigation Strategies in Emerging Markets

Over the past four decades, the trading of derivatives products in emerging markets has experienced significant modernization and adaptation, with variations based on each market’s initial organization and infrastructure. As a practitioner in portfolio management, risk management, and the derivatives marketplace, I have witnessed considerable progress in the development of derivatives products for financial and commodity assets in developing markets. This chapter aims to provide market participants, policymakers, and academics with key regulatory insights and trends that can facilitate the transformation and performance of derivatives products in emerging markets, especially in light of the 2007–2009 global financial crisis and the Covid-19 pandemic. The chapter also explores how crises can serve as opportunities by focusing on derivatives trading, liquidity management, and risk mitigation strategies in emerging markets. It identifies the main obstacles to launching successful derivatives products in these economies and offers practical solutions, policy measures, and implications. The goal is to establish clear operational platforms, robust regulations, and effective oversight to prevent misconduct, fraud, manipulation, abusive practices, and rogue trading in financial markets and institutions. Furthermore, the chapter provides an overview of Basel capital adequacy regulations for financial institutions, emphasizing liquidity risk and effective liquidity risk management under Basel III. It reviews key regulatory and operational processes and guidelines tailored to the specific needs of emerging markets. This chapter will be valuable to those interested in creating reliable operational platforms for derivatives trading in emerging markets, with a particular focus on options and options-embedded contracts, especially in the context of recent global financial and health crises.