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http://ssrn.com/abstract=1430576
 
 

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The Treasury Department's Proposed Regulation of OTC Derivatives Clearing & Settlement


Christopher L. Culp


Compass Lexecon; Risk Management Consulting Services, Inc.; Johns Hopkins University - Institute for Applied Economics, Global Health, and Study of Business Enterprise; University of Bern - Institute for Financial Management

July 6, 2009

Chicago Booth Research Paper No. 09-30
CRSP Working Paper

Abstract:     
In the wake of the ongoing credit crisis, policy makers are considering whether the regulation of over-the-counter (OTC) derivatives could help avert another such crisis and taxpayer-financed bailout. In particular, the Treasury Department has proposed to subject OTC derivatives to comprehensive regulation and to mandate the exchange trading and central counterparty clearing and settlement of standardized OTC derivatives. This paper explores the regulatory, operational, and economic aspects of the clearing and settlement of OTC derivatives and the likely consequences of the Treasury Plan. I contend that the proposal to mandate central counterparty OTC clearing for standardized products will not likely avert another potential crisis or failure of a large financial institution, but will likely engender significant legal and regulatory uncertainty, impede financial innovation, raise market participants’ costs, and adversely impact the competitiveness of U.S. derivatives participants. To address systemic and payment system concerns, improvements in the consolidated enterprise-wide supervision and regulation of certain financial institutions (across all of their risk-taking activities) will likely prove more effective and less disruptive than new product-based regulations.

Number of Pages in PDF File: 36

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Date posted: July 7, 2009 ; Last revised: October 2, 2009

Suggested Citation

Culp, Christopher L., The Treasury Department's Proposed Regulation of OTC Derivatives Clearing & Settlement (July 6, 2009). Chicago Booth Research Paper No. 09-30; CRSP Working Paper. Available at SSRN: http://ssrn.com/abstract=1430576 or http://dx.doi.org/10.2139/ssrn.1430576

Contact Information

Christopher L. Culp (Contact Author)
Compass Lexecon ( email )
332 South Michigan Avenue
Suite 1300
Chicago, IL 60604
United States
Risk Management Consulting Services, Inc. ( email )
25 E Superior St
#1806
Chicago, IL 60611
United States
HOME PAGE: http://www.rmcsinc.com
Johns Hopkins University - Institute for Applied Economics, Global Health, and Study of Business Enterprise ( email )
3400 N. Charles Street
Baltimore, MD 21218
United States
University of Bern - Institute for Financial Management ( email )
Engehaldenstrasse 4
Bern, CH-3012
Switzerland
HOME PAGE: http://cmslive3.unibe.ch/unibe/wiso/ifm/content/index_ger.html
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