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Shaping Reforms and Business Models for the OTC Derivatives Market: Quo vadis?

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  • Valiante, Diego

Abstract

Now that the worst of the financial storm is over, regulators are setting new strategies to deal with the systemic importance of the �427 trillion ($604 trillion) over-the-counter (OTC) derivatives market. This paper explores the three major sources of disruptive effects in OTC derivatives: liquidity, counterparty risk and legal uncertainty. These risks affect the value chain of a typical derivative transaction and weaken the economic and legal rationale behind their widespread use. On the policy side, commitments have been made at G-20 level to draft uniform rules on a global scale �to build a safer financial system�. This paper finds, however, that in practice, the EU and US proposals lay out divergent roads to meet common objectives and the author warns that such divergences may encourage regulatory and supervisory arbitrage.

Suggested Citation

  • Valiante, Diego, 2010. "Shaping Reforms and Business Models for the OTC Derivatives Market: Quo vadis?," ECMI Papers 3093, Centre for European Policy Studies.
    • Handle: RePEc:eps:ecmiwp:3093
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    File URL: https://www.ceps.eu/system/files/book/2010/04/ECMI%20RR5%20Valiante%20on%20Derivatives.pdf
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    Cited by:

    1. Valiante, Diego, 2012. "Setting the Institutional and Regulatory Framework for Trading Platforms: Does the MiFID definition of OTF make sense?," ECMI Papers 6811, Centre for European Policy Studies.
    2. Michele Bonollo & Irene Crimaldi & Andrea Flori & Laura Gianfagna & Fabio Pammolli, 2015. "Assessing financial distress dependencies in OTC markets: a new approach by Trade Repositories data," Working Papers 10/2015, IMT School for Advanced Studies Lucca, revised Oct 2015.
    3. Amariei, Cosmina & Valiante, Diego, 2014. "The OTC derivatives markets after financial reforms," ECMI Papers 9283, Centre for European Policy Studies.
    4. Michele Bonollo & Irene Crimaldi & Andrea Flori & Laura Gianfagna & Fabio Pammolli, 2016. "Assessing financial distress dependencies in OTC markets: a new approach using trade repositories data," Financial Markets and Portfolio Management, Springer;Swiss Society for Financial Market Research, vol. 30(4), pages 397-426, November.
    5. Lannoo, Karel, 2013. "Financial Services and the Transatlantic Trade and Investment Partnership," CEPS Papers 8616, Centre for European Policy Studies.

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