Regulation of over-the-counter derivatives in the US moved a step closer last week when the US Treasury sent its legislative proposals to Congress.

A key element of the plans is for standardised derivatives to be centrally cleared in order to reduce risks. The initiative has been framed in the light of last year’s financial crisis. The bankruptcy of Lehman Brothers and the collapse of AIG sparked turmoil in derivatives and threatened the financial system with ruin, as institutions were all exposed to each other through a daisy chain of contracts.