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Unpublished Paper
Shaping Reforms and Business Models for the OTC Derivatives Market. Quo vadis?
ExpressO (2010)
  • Diego Valiante

Regulators around the globe are setting new strategies to deal with the systemic importance of the €427 trillion ($604 trillion) over-the-counter (OTC) derivatives market. This paper explores the three major sources of disruptive effects in OTC derivatives: liquidity, counterparty risk and legal uncertainty. The author highlights risks that may affect the value chain of a derivative transaction and weaken the economic and legal rationales that justify their widespread use. On the policy side, commitments have been made at G-20 level to draft uniform rules on a global scale “to build a safer financial system”. This paper finds, however, that in practice, the EU and US proposals lay out divergent roads to meet common objectives and the author warns that such divergences may encourage regulatory and supervisory arbitrage. Policy options currently under discussion may need further revision. Access to network clearing infrastructures, such as CCPs, can only be made available to a restricted group of eligible derivative products. Mechanisms of adverse selection and moral hazard may at any time affect the efficient functioning of these crucial infrastructures for financial markets.

  • OTC derivatives,
  • central counterparty clearing (CCP),
  • data repositories,
  • collateral management,
  • electronic trading platform,
  • exchange,
  • market transparency,
  • systemic risk,
  • financial and securities regulation,
  • corporate finance,
  • capital markets,
  • financial crisis
Publication Date
July 21, 2010
Citation Information
Diego Valiante. "Shaping Reforms and Business Models for the OTC Derivatives Market. Quo vadis?" ExpressO (2010)
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