Meta‐regulation of OTC derivatives contracts post reform

Publication Date03 May 2013
AuthorSiona Listokin‐Smith
SubjectAccounting & finance
Meta-regulation of OTC
derivatives contracts post reform
Siona Listokin-Smith
School of Public Policy, George Mason University, Arlington, Virginia, USA
Purpose – The purpose of this paper is to examine the probable structure of bilateral derivatives
contracts following international regulatory reforms.
Design/methodology/approach The theoretical context of the paper is private and
meta-regulation, which the author applies to a case study and current industry analysis.
Findings – While regulations are still being written, it is likely that elements of oversight for the
bilateral derivatives market will involve enforced self-regulation. When combined with more specific
outcome-oriented regulatory requirements, the industry is well-suited to this type of coordinated
regulatory regime.
Practical implications – In light of the uncertainty of derivatives regulation and the future size of
the bilateral, over-the-counter (OTC) derivatives market, practitioners should consider a likely broader
range of regulation structures.
Originality/value The paper fills a gap in the literature about non-traditional governance structures
for the derivatives markets following the financial crisis. Rather than considering regulation on a
light/heavy axis, the paper examines whether this segment of the market can sustain a process-oriented
regulatory arrangement.
Keywords Derivativemarkets, Legislation,Financial regulation,Governance, UnitedStates of America,
Dodd-Frank, Meta-regulation, Self-governance
Paper type Research paper
1. Introduction
In the aftermath of the 2008 financial crisis, policy makers and industry participants
have been contemplating new regulations for derivative securities trading. The passage
of the US Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank) in
July 2010 crystallized this focus on derivatives and charged the Commodities and
Futures Trading Commission (CFTC) and the Securities Exchange Commission (SEC)
with oversight over the market in the USA. Two years after the passage of Dodd-Frank
the CFTC and SEC in the USA, and their regulatory counterparts in England and
Europe, are still working through the detailed rules for industry participants. As such,
it is still an open question as to what regulation for over-the-counter (OTC) derivatives
will actually look like, particularly for derivatives trades that are not cleared on a central
clearing exchange.
This paper examines the possible regulatory arrangements for the OTC derivatives
market. In particular, the study will explore the probable relationships between the
regulatory agencies, industry groups and individual market participants, rather than
examining specific rules. While broad regulatory reforms have been established by
Dodd-Frank, the specifics of oversight that have been left to the agencies, leaving the
final structure of regulation “the subject(s) of much political and academic debate”
(Giustiniani and Thornton, 2011). The interaction of the industry and the agencies
since the passage of legislation, in addition to the relationship between regulators and
The current issue and full text archive of this journal is available at
Journal of Financial Regulation and
Vol. 21 No. 2, 2013
pp. 188-200
qEmerald Group Publishing Limited
DOI 10.1108/13581981311315677

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