Volume 17, Issue 1 (Fall 2011)


Gambling by Another Name; The Challenge of Purely Speculative Derivatives

Timothy E. Lynch, University of Missouri at Kansas City - School of Law
Derivatives contracts can be used to hedge pre-existing risks, but they can also be used to speculate. This Article focuses on derivatives contracts in which both counterparties are speculators. These “purely speculative derivatives (PSD) contracts” have become increasingly common over the last several years and have notably resulted in the transfer of many tens of billions of dollars from institutions that had invested in the US subprime housing market to a handful of speculators who foresaw the market’s collapse, as well as many billions of dollars in fees to PSD brokers.
  • October 2011
  • 17 Stan. J.L. Bus. & Fin. 188
  • Article