Mandatory clearing: the infrastructural authority of central counterparty clearing houses in the OTC derivatives market

This study examines the role of central counterparty clearing houses (CCPs) in the over-the-counter (OTC) derivatives market. To achieve this goal, this paper introduces the notion of infrastructural authority. The notion of infrastructure, borrowed from Science and Technology Studies, is employed to locate a form of private authority stemming from how power and legitimacy are exercised by enabling the performance of specific functions in financial markets. As OTC derivatives had become widely discredited after the crisis, regulators had come under strong pressure to reform what had grown to be a systematically important segment of the global financial system. G20 leaders thus responded in 2009 by pledging to make the central clearing of standardized OTC derivatives mandatory to improve financial stability. Therefore, this study argues that the infrastructural authority of CCPs is politically contingent, originating from the statutory requirement of mandatory clearing in the OTC market. However, by reviewing specific moments in financial history, this study concludes that the infrastructural authority of CCPs may actually destabilize financial markets, undermining the G20’s original intent to strengthen systemic stability. More generally, the research conducted in this study provides evidence of the changing nature of authority in financial markets following the 2007–2008 financial crisis.