Governing Systemic Risk: Towards a Governance Structure for Derivatives Clearinghouses

88 Pages Posted: 6 Oct 2012

See all articles by Sean J. Griffith

Sean J. Griffith

Fordham University School of Law; European Corporate Governance Institute (ECGI)

Date Written: October 5, 2012


Derivatives transactions create systemic risk by threatening to spread the consequences of default throughout the financial system. Responding to the manifestations of systemic risk exhibited in the financial crisis, policy-makers have sought to solve the problem by requiring as many derivatives transactions as possible to be “cleared” (essentially guaranteed) by a clearinghouse. The clearinghouse will centralize and, through the creation of reserve accounts, seek to contain systemic risk by preventing the consequences of default from spreading. This centralization of risk makes the clearinghouse the new locus of systemic risk, and the question of systemic risk management thus becomes a question of clearinghouse governance. Unfortunately, each of the likely players in clearinghouse governance — dealers, customers, and investors — has significant incentive problems from the perspective of systemic risk management. I will argue that the policy-makers’ responses to these problems — focusing on voting caps and director independence — are inadequate to address the problem of systemic risk inherent in derivatives transactions. I argue, instead, in favor of the adoption of a new board structure more reflective of the public-private role of clearinghouses and suggest that models for this new governance structure can be found outside of traditional U.S. corporate governance norms in the dual-board structure of continental Europe.

Keywords: derivatives, clearinghouse, Dodd-Frank, governance, financial regulation, systemic risk, counterparty credit risk, CFTC, SEC, DCO

JEL Classification: G28, K22, K23

Suggested Citation

Griffith, Sean J., Governing Systemic Risk: Towards a Governance Structure for Derivatives Clearinghouses (October 5, 2012). Emory Law Journal, Vol. 61, No. 5, 2012; Fordham Law Legal Studies Research Paper No. 2157693. Available at SSRN:

Sean J. Griffith (Contact Author)

Fordham University School of Law ( email )

150 West 62nd Street
New York, NY 10023
United States

European Corporate Governance Institute (ECGI) ( email )

B-1050 Brussels

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