Filling a Regulatory Gap: It is Time to Regulate Over-the-Counter Derivatives

UNC Legal Studies Research Paper No. 1338339

N.C. Banking Institute, Vol. 13, 2009

16 Pages Posted: 16 Sep 2009  

Thomas Lee Hazen

University of North Carolina (UNC) at Chapel Hill - School of Law

Abstract

The recent credit crisis has highlighted the lack of regulation for credit default swaps that has both magnified and contributed to market failure that began in the latter half of 2008. Securities regulation covers most types of investment contracts, but currently does not include non-securities based derivative contracts such as credit default swaps. The unique aspect of credit default swaps is that unlike other risk shifting contracts such as insurance, they are not regulated. The regulatory framework lacks a consistent approach in dealing with risk shifting and hedging devices. The degree of regulation is based on the form of the instrument rather than on the substance of the risk shifting transactions. This essay is an abridged and updated version of a 2005 article that questioned the wisdom of deregulation in the derivatives markets that has taken place since the early 1990s.

Keywords: derivatives, credit default swaps, securities regulation, deregulation

Suggested Citation

Hazen, Thomas Lee, Filling a Regulatory Gap: It is Time to Regulate Over-the-Counter Derivatives. UNC Legal Studies Research Paper No. 1338339; N.C. Banking Institute, Vol. 13, 2009. Available at SSRN: https://ssrn.com/abstract=1338339

Thomas Lee Hazen (Contact Author)

University of North Carolina (UNC) at Chapel Hill - School of Law ( email )

Van Hecke-Wettach Hall, 160 Ridge Road
CB #3380
Chapel Hill, NC 27599-3380
United States
919--962-8504 (Phone)

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