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

Joel Telpner (Partner at Mayer Brown LLP, Chicago, IL, USA)
Jamila Piracci (Associate based at Mayer Brown LLP, Chicago, IL, USA)

Journal of Investment Compliance

ISSN: 1528-5812

Article publication date: 11 September 2009

594

Abstract

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.

Keywords

Citation

Telpner, J. and Piracci, J. (2009), "OTC derivatives: proposed legislative and regulatory efforts to impose a more rigid regulatory structure", Journal of Investment Compliance, Vol. 10 No. 3, pp. 26-33. https://doi.org/10.1108/15285810910995548

Publisher

:

Emerald Group Publishing Limited

Copyright © 2009, Company

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