The Dynamics of OTC Derivatives Regulation: Bridging the Public-Private Divide

Posted: 6 Apr 2010 Last revised: 10 Jan 2017

See all articles by Dan Awrey

Dan Awrey

Cornell Law School; European Corporate Governance Institute

Date Written: April 6, 2010

Abstract

Over-the-counter (OTC) derivatives have emerged as a global behemoth – the ‘800 pound gorilla’ of modern financial markets. In the wake of both their precipitous growth and prominence in the thick of the current global financial crisis, financial market regulators have found themselves under pressure to enhance their regulation of OTC derivatives markets. This paper explores both the private and social costs and benefits of OTC derivatives and the respective strengths and weaknesses of public and private systems of ordering in pursuit of the optimal mode of regulating OTC derivatives markets. On the basis of this exploration, this paper advocates employing modes of regulation which abandon the largely artificial distinction between public and private ordering, align the incentives of public and private actors and facilitate the long-term transfer of information and expertise between these actors in order to generate more nuanced and responsive regulation and thereby enhance social welfare.

Keywords: Financial Market Regulation, Over-The-Counter (OTC) Derivatives Regulation, Public and Private Ordering, Private and Social Costs of Regulation, Asymmetries of Information and Expertise, Complexity within Financial Markets

Suggested Citation

Awrey, Dan, The Dynamics of OTC Derivatives Regulation: Bridging the Public-Private Divide (April 6, 2010). (2010) 11:2 European Business Organization Law Review 155-193, Oxford Legal Studies Research Paper, Available at SSRN: https://ssrn.com/abstract=1585323

Dan Awrey (Contact Author)

Cornell Law School ( email )

Myron Taylor Hall
Cornell University
Ithaca, NY 14853-4901
United States

European Corporate Governance Institute ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

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