But there are those who argue that many individuals already get the benefit of derivatives and other risk-management products, without actually knowing that is what they are. There are also several products, such as the RiskGrades measurement system from RiskMetrics and the risk values offered by California-based firm Financial Engines . Both are designed to show investors the potential downside of their investments as well as the possible returns. Many observers believe that virtually any type of product which is already commoditised in the institutional market will eventually become available in the retail market, regulations permitting. Those arguing in favour of retail derivatives say they simply want to give an increasingly sophisticated retail clientele the right to choose its own providers of products and services.
Regulatory approval is another major obstacle to the development of retail derivatives.
But the debate in Washington over renewal of the Commodity Exchange Act showed up divisions within the industry over retail derivatives. This seems likely to prove a blow to the development of retail derivatives in their purest form, though there's still a chance that regulatory reform will allow a market to develop. Meanwhile, there is a vibrant and growing market for risk management products and services that do not involve marketing derivatives directly to individuals. In some respects, offering risk management to private clients gives banks the ultimate CRM opportunity - the ability to help manage every aspect of a customer's financial needs, and to sell them new products to help them do this. Whether or not retail derivatives get past regulatory hurdles and public suspicion, offering risk management to the public will seem like an increasingly attractive business for many banks to get into.