From bombs to boons: changing views of risk and regulation in the pre-crisis OTC derivatives market

2020 ◽  
Vol 49 (2) ◽  
pp. 215-244
Author(s):  
Erin Lockwood
Keyword(s):  
Otc Derivatives

Seeking Optimal OTC Derivatives Regulation

CFA Magazine ◽  
2013 ◽  
Vol 24 (1) ◽  
pp. 51-52
Author(s):  
Beth Kaiser
Keyword(s):  
Otc Derivatives

A Web without a Center

2018 ◽  
Author(s):  
Peter Knaack
Keyword(s):  
Regulatory Network ◽  
Financial Stability ◽  
Public Governance ◽  
The Public ◽  
Otc Derivatives ◽  
Unilateral Action ◽  
Regulatory Cooperation ◽  
Private And Public ◽  
Legal Barriers ◽  
Global Data

G20 leaders vowed to collect and share OTC derivatives trade data so that regulators can obtain a global picture of market and risk evolution. This chapter employs a network perspective to explain why they have failed to meet this commitment to date. It examines three networks: the OTC derivatives market itself, and those of its private and public governance. The analysis shows that the Financial Stability Board (FSB), the public supervisory entity, struggles to establish itself at the center of the global regulatory network. It failed to act as a first mover in setting global trade identification standards (legal entity identifiers), and it has not been able to establish a core of global data warehouses. This is largely the result of unilateral action by FSB members. In particular, legislators in member countries have undermined FSB-led efforts by refusing to remove legal barriers to transnational regulatory cooperation and, in some instances, by erecting new ones.

The Politics and Practices of Central Clearing in OTC Derivatives Markets

2018 ◽  
Author(s):  
Erin Lockwood
Keyword(s):  
Financial Markets ◽  
Unintended Consequences ◽  
Regulatory Change ◽  
Significant Shift ◽  
Risk Modeling ◽  
Risk Models ◽  
Over The Counter ◽  
Otc Derivatives ◽  
Derivatives Markets ◽  
Policy Shifts

This chapter focuses on the unintended consequences of the post-crisis mandate that over-the-counter (OTC) derivatives be cleared through centralized clearinghouses in an effort to reduce counterparty and systemic risk. Although central clearing has been widely implemented, it has reproduced many of the same characteristics of financial markets that contributed to the 2008 crisis: concentrated risk, moral hazard, and a reliance on faulty risk models. What accounts for the recalcitrance of the OTC derivatives market to a regulatory change? The chapter argues that focusing on the technologies and practices used to govern derivatives markets helps explain the absence of more radical regulatory policy shifts in derivatives regulation. Although there has been a significant shift in who regulates OTC markets, much less has changed at the level of the specific practices that govern these markets, and the chapter examines the continued reliance on netting, collateralization, and risk modeling within clearinghouses.

Becoming the World’s Biggest Market

2018 ◽  
Author(s):  
Irene Spagna
Keyword(s):  
Global Economy ◽  
Global Financial Crisis ◽  
Credit Default Swaps ◽  
Deregulated Markets ◽  
Otc Derivatives ◽  
Regulatory Uncertainty ◽  
Credit Default ◽  
Basic Characteristics ◽  
The Global Financial Crisis

This chapter analyzes the growth of OTC derivatives before the global financial crisis of 2008 and the role of credit default swaps, in particular, in the near collapse of the global economy. It begins by exploring the basic characteristics of derivatives used as risk management instruments by investors to hedge against or exploit the volatility of asset prices. The analysis further reveals that the pre-crisis period was characterized by a broad-based consensus favoring deregulated markets and globally designed private rules. While not always unanimously supported, permissive public regulatory choices were often encouraged by interest group lobbying, the market-friendly views of many domestic authorities, and concerns about regulatory uncertainty and international competitiveness.

Regulate in Haste, Repent at Leisure: Private and Public Orderings in OTC Derivatives Markets

2020 ◽  
Author(s):  
Craig Pirrong
Keyword(s):  
Financial Crisis ◽  
Functional Approach ◽  
Over The Counter ◽  
Otc Derivatives ◽  
Private And Public ◽  
Derivatives Markets

Over-the-counter derivatives were widely blamed for causing or exacerbating the financial crisis. As a result of perceived structural failings in these markets, legislators and regulators mandated substantial changes. The most notable of these changes was a requirement that most derivatives be centrally cleared. Under clearing, a central counterparty becomes a party to all contracts and guarantees performance on them. These mandates were predicated on a defective understanding of the economics of derivatives markets. The proposed reforms were fundamentally flawed because they were rooted in an institutional, rather than functional, approach to regulation.

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