A framework for examining the process of financial market development is proposed. The framework is anchored in studying the incentives facing the key players in financial markets - borrowers, lenders, liquidity providers, and regulators - whose actions determine whether and how markets develop. While different financial instruments embody different concessions by borrowers and lenders, the framework emphasizes two main compromises: the tradeoffs between maturity and collateral, and between seniority and control in the sequencing of market development. © 2010 Taylor & Francis.