From Reaction to Prevention: Product Approval as a Model of Derivatives Regulation
Saule T. Omarova
Cornell Law School
February 25, 2013
Harvard Business Law Review Online, Forthcoming
UNC Legal Studies Research Paper No. 2224200
This essay outlines the rough contours of a conceptually new regulatory scheme based on mandatory pre-market government licensing of derivatives and other complex financial instruments. Contrary to the current approach to regulating derivatives markets, the proposed product approval regime explicitly aims to control the amount and types of risk before it is introduced into the financial system. In that sense, it is a true gatekeeping mechanism, a potentially more effective form of ex ante – as opposed to ex post – regulation of systemic risk in financial markets.
Number of Pages in PDF File: 14
Keywords: derivatives, financial regulation, regulatory reform, Dodd-Frank, product approval, financial innovation, complexity, speculation, systemic risk
Date posted: February 27, 2013 ; Last revised: March 18, 2013
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