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Journal cover: Journal of Investment Compliance

Journal of Investment Compliance

ISSN: 1528-5812

Online from: 2000

Subject Area: Accounting and Finance

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OTC derivatives: proposed legislative and regulatory efforts to impose a more rigid regulatory structure

Document Information:
Title:OTC derivatives: proposed legislative and regulatory efforts to impose a more rigid regulatory structure
Author(s):Joel Telpner, (Partner at Mayer Brown LLP, Chicago, IL, USA), Jamila Piracci, (Associate based at Mayer Brown LLP, Chicago, IL, USA)
Citation:Joel Telpner, Jamila Piracci, (2009) "OTC derivatives: proposed legislative and regulatory efforts to impose a more rigid regulatory structure", Journal of Investment Compliance, Vol. 10 Iss: 3, pp.26 - 33
Keywords:Derivative markets, Financial services, Legislation, Regulation
Article type:Technical paper
DOI:10.1108/15285810910995548 (Permanent URL)
Publisher:Emerald Group Publishing Limited
Acknowledgements:© Mayer Brown LLP 2009

Purpose – The purpose of this paper is to explain and analyze recent US Congressional, Obama Administration, and financial services industry initiatives to reform and regulate the market for OTC derivatives.

Design/methodology/approach – The paper outlines Congressional committee bills, other Obama Administration initiatives, and industry self-regulatory initiatives and discusses underlying current issues such as which derivatives would and would not have to be cleared through central counterparties (CCPs); how standardized and customized derivatives would be distinguished from each other; potential margin, business conduct, reporting, and recordkeeping standards for OTC derivatives dealers; how fraud, market manipulation, and other market abuses would be policed; possible limitations on the types of parties that may participate in unregulated derivatives; possible resolution of the sometimes confusing and overlapping authority of the SEC and CFTC over OTC derivatives; how and by which federal or state authority credit default swaps (CDS) might be regulated; the potential for regulatory arbitrage; and the danger that stringent regulation in the USA will drive OTC derivatives business offshore.

Findings – Unlike markets for other financial instruments, derivatives market participants, largely through ISDA, have for some time cooperated closely with the New York Fed and engaged in a myriad self-policing activities. Time will tell whether this existing framework, combined with the redoubled self-policing efforts of market participants, will cause policymakers to seek appropriate legislation that will not threaten the preservation of the OTC derivatives market in the USA.

Originality/value – The paper presents a clear and detailed guide and explanation of recent regulatory initiatives and underlying issues.

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