What’s the future for much-maligned derivatives?

More regulation is certainly on the way, too. Credit default swaps are over-the-counter derivatives, meaning they are not traded on exchanges. Over-the-counter derivatives are traded among financial institutions, if they are traded at all. That lack of liquidity causes major problems in times of financial stress.

Of the $680 trillion in global derivatives, $84 trillion, or 12 percent, are traded on exchanges. Look for that percentage to increase. Much of the risk with over-the-counter options is counter-party risk. If you engage in such a derivatives transaction, you don't know if the other party will be solvent when it comes time for money to change hands.

On an exchange, any party holding a losing position on a derivatives contract has to continually put up additional capital as the position drops in value or close it out.

Derivatives exchanges, such as the Chicago Mercantile Exchange, are overseen by the Commodity Futures Trading Commission. And it will surely look at the exchanges more carefully now that everyone has seen the damage that derivatives can cause.

Risk management for derivatives will likely take more precedence at financial firms. During the real-estate boom, Merrill Lynch fired a senior executive who questioned its reliance on mortgage derivatives. He has since been rehired.

"Risk managers have to be given stronger say," says Scott Pardee, an economics professor at Middlebury College who occupied senior positions at the New York Federal Reserve Bank and several Wall Street firms. "They should report directly to the board of directors rather than the CEO, just like auditors."