Derivatives Clearing Mandates: Cure or Curse?

10 Pages Posted: 4 Oct 2010

See all articles by Craig Pirrong

Craig Pirrong

University of Houston - Department of Finance

Abstract

The Dodd-Frank Act mandates the widespread adoption of centralized clearing of OTC derivatives and also includes measures designed to move more derivatives trading onto exchanges. But, as the author points out, such a clearing mandate appears to be based on the premise that the recent experience in OTC derivatives represents a major market failure and that participants in what is now the world's largest financial market have been systematically choosing the wrong institutions for risk management and trading.

In this article, the author begins by explaining why all derivatives are not cleared or exchange-traded, and why the attempt to mandate such practices (as opposed to encouraging voluntary adoption through differential capital requirements) could have serious unwanted consequences. Among such consequences is a possible increase in the very systemic risk that such mandates are supposed to prevent.

Suggested Citation

Pirrong, Craig, Derivatives Clearing Mandates: Cure or Curse?. Journal of Applied Corporate Finance, Vol. 22, Issue 3, pp. 48-55, Summer 2010. Available at SSRN: https://ssrn.com/abstract=1684895 or http://dx.doi.org/10.1111/j.1745-6622.2010.00289.x

Craig Pirrong (Contact Author)

University of Houston - Department of Finance ( email )

Houston, TX 77204
United States

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
7
Abstract Views
465
PlumX Metrics