Not Available for Download

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

Journal of Applied Finance, Vol. 2 (2010)

Posted: 7 Jul 2009 Last revised: 21 Dec 2014

Christopher L. Culp

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

Date Written: July 6, 2009

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.

Suggested Citation

Culp, Christopher L., The Treasury Department's Proposed Regulation of OTC Derivatives Clearing & Settlement (July 6, 2009). Journal of Applied Finance, Vol. 2 (2010). Available at SSRN: https://ssrn.com/abstract=1430576 or http://dx.doi.org/10.2139/ssrn.1430576

Christopher L. Culp (Contact Author)

Johns Hopkins University - Institute for Applied Economics, Global Health, and Study of Business Enterprise ( email )

3400 N. Charles Street
Baltimore, MD 21218
United States

Swiss Finance Institute ( email )

c/o University of Geneva
40, Bd du Pont-d'Arve
CH-1211 Geneva 4
Switzerland

Compass Lexecon ( email )

332 South Michigan Avenue
Suite 1300
Chicago, IL 60604
United States

Risk Management Consulting Services, Inc. ( email )

1501 N. State Pkwy., No. 7A
#7A
Chicago, IL Illinois 60610
United States
3125877163 (Phone)

HOME PAGE: http://www.rmcsinc.com

Paper statistics

Abstract Views
4,382