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Article
Publication date: 11 September 2009

Joel Telpner and Jamila Piracci

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…

566

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.

Details

Journal of Investment Compliance, vol. 10 no. 3
Type: Research Article
ISSN: 1528-5812

Keywords

Book part
Publication date: 23 December 2005

Jing Chi and Martin Young

While China is currently moving toward the full development of its own financial derivatives markets, to date, China's experience with these has been a negative one. This…

Abstract

While China is currently moving toward the full development of its own financial derivatives markets, to date, China's experience with these has been a negative one. This paper examines the importance to China of developing a fully integrated financial derivatives market from both the economic and financial market perspectives. It examines the best way forward for derivative trading, both market based and over-the-counter, and the types of products best suited to both, given the current state of the Chinese financial markets. Consideration is given to market structure, regulation, trading and settlement systems and international cooperation.

Details

Asia Pacific Financial Markets in Comparative Perspective: Issues and Implications for the 21st Century
Type: Book
ISBN: 978-0-76231-258-0

Article
Publication date: 1 April 2002

Katherine Tyler and Edmund Stanley

In 1997, in this journal, Elizabeth Sheedy published a paper investigating exchange relationships in derivative markets. This paper was significant for two reasons. It was…

1708

Abstract

In 1997, in this journal, Elizabeth Sheedy published a paper investigating exchange relationships in derivative markets. This paper was significant for two reasons. It was the first article to consider the marketing of these important financial instruments. Second, her article set out a forceful argument that relationships in this context were breaking down, and that the advantages associated with a relationship model of exchange had not appeared, and indeed had to some extent facilitated the series of well publicised derivative disasters. In this paper, the authors respond to Sheedy’s call for further research through an empirical examination of the over‐the‐counter equity derivatives market in the USA and Britain, arguing that while relationships in this market do, to a limited degree, exhibit characteristics atypical of wider financial services contexts, the relationship paradigm continues to be relevant, and indeed inherent, to over‐the‐counter derivative exchange.

Details

International Journal of Bank Marketing, vol. 20 no. 2
Type: Research Article
ISSN: 0265-2323

Keywords

Article
Publication date: 11 April 2008

Andreas A. Jobst

Amid benign monetary policy in mature market countries and high liquidity‐induced demand, lower risk premia have encouraged risk diversification into alternative asset…

3112

Abstract

Purpose

Amid benign monetary policy in mature market countries and high liquidity‐induced demand, lower risk premia have encouraged risk diversification into alternative asset classes outside the scope of conventional investment. The development of derivative markets in emerging economies plays a special role in this context as more institutional money is managed on a global mandate, with more and more capital being dedicated to emerging market equity. This paper aims to focus on these issues.

Design/methodology/approach

This paper reviews the recent development of equity derivative markets in emerging Asia and informs a critical debate about market practices and prudential supervision. Goal of the paper is also to outline essential elements and key policy considerations in developing derivative markets.

Findings

The supervision of emerging derivative markets depends on the expedient and tractable resolution of challenges arising from consistent risk management, risk mutualization, and prudential standards that guarantee market stability in crisis situations. In particular, further efforts are needed in areas of cash market liquidity, trading infrastructure as well as legal and regulatory frameworks based on a set of coherent principles for capital market development.

Originality/value

The paper offers a comprehensive set of principles for the development of equity derivative markets based on the current state of equity derivative trading in emerging Asia. Given current efforts by national regulators in the region to implement comprehensive guidelines on derivatives and revise short selling restrictions, the scope of this paper has topical appeal from the perspective of market participants and regulators.

Details

International Journal of Emerging Markets, vol. 3 no. 2
Type: Research Article
ISSN: 1746-8809

Keywords

Article
Publication date: 1 April 2006

Mazin A.M. Al Janabi

Since, the early 1990s, emerging markets have started to play an important role in the trading of derivatives products. Despite the fact that these markets are…

1018

Abstract

Purpose

Since, the early 1990s, emerging markets have started to play an important role in the trading of derivatives products. Despite the fact that these markets are characterized in general as illiquid, segmented, politically unstable, with lack of regulations and historical financial databases, they do have some advantages for markets' participants. This paper aims to discuss some of the main obstacles to the inception of successful derivative products in emerging economies and to provide a number of viable solutions.

Design/methodology/approach

The objective of this paper is to share with financial markets' participants, regulators and policymakers some of the author's real‐world experiences and observations as a derivatives trader and later as a trading risk manager in emerging economies. The endeavor here is to provide several robust guidelines that can assist emerging markets in the establishment of sound derivative markets within a prudential framework of rules and policies.

Findings

To this end, key risk management rules and procedures that should be considered before dealing with derivative products are examined and adapted to the specific needs of emerging markets. The suggested viable solutions can be implemented in almost all emerging economies, if they are adapted to correspond to each market's initial level of sophistication.

Practical implications

The real‐world guidelines and observations that are discussed in this work will be of value to financial entities, regulators and policymakers operating within the context of emerging markets.

Originality/value

This paper fills a gap in the risk management literature, especially from the emerging markets perspective, by providing a practitioner's views on how to set‐up sound and effective derivative products markets in emerging economies. The paper will be of value to those interested in founding a successful and sound trading environment of derivative products in emerging markets.

Details

Journal of Financial Regulation and Compliance, vol. 14 no. 2
Type: Research Article
ISSN: 1358-1988

Keywords

Article
Publication date: 1 February 1997

Elizabeth Sheedy

In 1994/95 the derivatives industry was rocked by a series of high‐profile derivatives disasters. For example, litigation between Procter & Gamble and Bankers Trust…

2276

Abstract

In 1994/95 the derivatives industry was rocked by a series of high‐profile derivatives disasters. For example, litigation between Procter & Gamble and Bankers Trust highlighted a troubled relationship between banks and corporate clients. Examines the success of relationship marketing in the derivatives industry in light of these events. Participants in the derivatives industry in Sydney and Hong Kong are interviewed to determine whether the watershed cases of 1994/95 caused, or were indicative of, a more widespread deterioration in relationships. However, the expected benefits of relationship banking have remained largely unrealized. Concludes that further work is needed to overcome the significant impediments to successful implementation of relationship banking.

Details

International Journal of Bank Marketing, vol. 15 no. 1
Type: Research Article
ISSN: 0265-2323

Keywords

Abstract

Details

The Exorbitant Burden
Type: Book
ISBN: 978-1-78560-641-0

Article
Publication date: 20 July 2012

George Karathanasis, Vasilios Sogiakas and Kenellos Toudas

Nowadays, a very interesting issue that matters both to academics and practitioners is the necessity and/or the usefulness of financial market regulation. This topic has…

Abstract

Purpose

Nowadays, a very interesting issue that matters both to academics and practitioners is the necessity and/or the usefulness of financial market regulation. This topic has many alternative dimensions, one of which concerns the derivative listing process. The main objective of the derivative's market regulatory authorities is the profitability of its members and the good performance of the exchange. The purpose of this paper is to investigate empirically the specific criteria that have governed the regulation process with respect to the derivative listing in the Athens Derivatives Exchange (ADEX).

Design/methodology/approach

The econometric part of the paper consists of two steps. The first step, deals with the estimation of the volatility, the default probability and the corporate governance provision index for each candidate firm. The second step consists of the utilization of a logit regression for the determination of the regressors and their significance in explaining which firms should be included into the derivatives and non‐derivatives groups. This analysis is extended through a rolling window technique that captures the time varying characteristics of the estimated coefficients of the derivatives listing strategy implemented by the ADEX.

Findings

According to the empirical findings, the ADEX's regulatory authorities have considered mainly the corresponding firms' capitalization while the creditworthiness and the managerial characteristics of the candidates have been adopted only partially.

Originality/value

To the best of the authors' knowledge, the existing literature is confined to US markets and nothing has been done with respect to European Derivatives Markets. This paper investigates the Greek case, the Athens Derivatives Exchange. In addition to the factors investigated by Mayhew and Mihov and Jennings and Starks, the authors have extended their analysis to include such factors as creditworthiness and managerial characteristics of firms.

Details

Journal of Financial Regulation and Compliance, vol. 20 no. 3
Type: Research Article
ISSN: 1358-1988

Keywords

Article
Publication date: 1 June 1997

R. Dixon and R.K. Bhandari

There has been an extraordinary increase in the use of financial derivatives in the capital markets. Consequently derivative instruments can have a significant impact on…

4543

Abstract

There has been an extraordinary increase in the use of financial derivatives in the capital markets. Consequently derivative instruments can have a significant impact on financial institutions, individual investors and even national economies. This relatively recent change in the status of derivatives has led to calls for regulation. Fears that using derivatives to hedge against risk carries in itself a new risk was brought sharply into focus by the collapse of Barings Bank in 1995. The principal concerns of regulators about how legislation may meet those concerns are the subject of current debate between the finance industry and the regulators. Recommendations have been made and reviewed by some of the key players in the capital markets at national and global levels. There is a clear call for international harmonization and its recognition by both traders and regulators. There are calls also for a new international body to be set up to ensure that derivatives, while remaining an effective tool of risk management, carry a minimum risk to investors, institutions and national/global economies. Having reviewed derivatives and how they work, proceeds to examine regulation. Finds that calls for regulation through increased legislation are not universally welcome, whereas the regulators’ main concern is that the stability of international markets could be severely undermined without greater regulation. Considers the expanding role of banks and securities houses in the light of their sharp reactions to increases in interest rates and the effect their presence in the derivatives market may have on market volatility. Includes the reaction of some 30 dealers and users to the recommendations of the G‐30 report and looks at some key factors in overcoming potential market volatility.

Details

International Journal of Bank Marketing, vol. 15 no. 3
Type: Research Article
ISSN: 0265-2323

Keywords

Article
Publication date: 5 January 2010

Alieva Ghiulnara and Cristina Viegas

The purpose of this paper is to present an overview of weather derivatives markets and to highlight the importance of the contributing factors for weather risk management…

975

Abstract

Purpose

The purpose of this paper is to present an overview of weather derivatives markets and to highlight the importance of the contributing factors for weather risk management such as weather sensitivity, weather forecast, and economic growth. In this paper, the prospective of using weather derivatives in Portugal and why Portugal should use such instruments as well as the potential of Portugal's enterprises are presented.

Design/methodology/approach

This paper attempts to distinguish the reasons for the appearance of a weather derivatives market and the growth potential of the European weather market.

Findings

Successful development of a Portuguese weather derivatives market will require three things. For the successful development of weather derivatives market, a legal and economic framework is needed, as well as the development of new weather products, training of qualified specialists for working with these instruments and attracting companies interested in hedging their profits. A combination of these factors will help growth and will accelerate the development of a weather derivatives market in Portugal.

Originality/value

The paper identifies some conditions that could allow the progress of the weather derivatives market in Portugal.

Details

The Journal of Risk Finance, vol. 11 no. 1
Type: Research Article
ISSN: 1526-5943

Keywords

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