A derivatives contract be it exchange traded or OTC is above all a legal agreement whose terms define the financial obligations and commitments of the parties involved. For exchange traded products the terms and contract specifications are set by the exchange. This is the case for example for Euronext Liffe Contract (the pan European exchange based in London) and Sydney Futures Exchange (SFE) in Australia and Russia. Contracts specifications are subject to change. OTC contract terms are set by ISDA for swaps products, the TBMA and ICMA for repos and IFXCO for currency options. These documentation offer a framework which aim to capture the terms of each transactions.
Around the world a spate of new legislations related to derivatives are emerging. Legislators claim they are meant to protect investors while markets participants fear this may stifle the development of derivatives markets. Most legislations have been prompted by major corporate collapses such as LTCM and ENRON (Enron Accounting Issues (Testimony of Prof. B. G. Dharan, Rice Univ.). Others constitute a response to the emerging financial instruments for example Hedge Funds (SEC Petition for Review of hedge funds rules) or market practice for example securities borrowing and lending. Courts rulings particularly on taxation issues, contract disputes and other commercial conflicts over rule interpretations.
On September 2006 the Japanese Financial Services Agency published a new Legislative Framework for Investor Protection which covers financial instruments and exchange law. The law amended the Securities and Exchange Law and other financial laws. The new laws were approved in the Japanese parliament on the 164th Diet session held on June 7, 2006. The English summary of the new laws van be viewed here.