The over-the-counter (OTC) derivatives market has captured the attention
of regulators after the Global Financial Crisis due to the risk it poses
to financial stability. Under the post-crisis regulatory reform the
concentration of business, and risks, among a few major players is
changed by the concentration of a large portion of transactions in the
new market infrastructures, the Central Counterparties (CCPs).
This book, for the first time, analyses the regulatory response of the
United Kingdom and the United States, the two largest centres of OTC
derivatives transactions, and highlights their shortcomings. The book
uses a normative risk-based approach to regulation as a methodological
lens to analyse the UK regime of CCPs in the OTC derivatives market. It
specifically focuses on prudential supervision and conduct of business
rules governing OTC derivatives transactions and the move towards
enhancing the use of central clearing. The resulting analysis, from a
normative risk based approach, suggests that the UK regime for CCPs does
not fulfil what would be expected if a coherent risk based approach was
taken.
Our comments on the Dodd-Frank Act highlight that the incoherent
adoption of risk-based approach to regulation affects the effectiveness
of the US regime for CCPs. Such a regime does not follow the pace of
events of 'innovation risk'; in particular, the foreseeable changes
FinTech will bring to the OTCDM and central clearing services. The
second inadequacy of the US regime concerns the dual regulatory
structure of the CFTC and the SEC, and the inadequate adoption of
different and not well-coordinated regulatory strategies. We also
analyse the cross-border implications of the US regime for non-US CCPs
that provide clearing services to US market participants. Finally, we
study the negative effects of the absence of a clearly defined
resolution regime for CCPs.
