At the core of the 2008 financial crisis was a massive, un-publicly regulated market of complex financial products, which transmitted losses in the US residential mortgage market throughout the global financial system. How did the market for over-the-counter (OTC) derivatives grow so large and so risky with so little public supervision and regulation? At the heart of the matter, I contend, are changes in how both derivatives and risk have been understood as objects of governance. This article focuses on the decade preceding the passage of the 2000 Commodity Futures Modernization Act to demonstrate how competing and ultimately shifting understandings of both derivatives and financial risk put in place the conditions of possibility for the definitive deregulation of this market. Through a detailed interpretive analysis of regulatory documents, I show that changes in OTC derivatives regulation have been driven by changes in how regulators interpret derivatives themselves in a context of changing beliefs about risk and its management. Although regulators were acutely aware of OTC derivatives’ contribution to systemic risk as early as the early 1990s, they ultimately concluded that derivatives’ ability to serve as tools of risk management and generators of financial profits was consistent with their goal of promoting deep and liquid financial markets and thus took a decisively hands-off approach to regulation. The article concludes with a discussion of what shifts in interpretation and regulation of derivatives can tell us about the limits and potential for lasting post-crisis changes in financial governance.