Moral Contestation and the Regulatory Politics of Rule-Making for Derivatives

Abstract

A central question facing market societies is how governments can best regulate economic competition in emerging areas. This paper illuminates this general question by examining the public comments submitted to the Commodity Futures Trading Commission (CFTC), 2010-2014, in response to proposed rules for implementing a particularly technical part of the Dodd-Frank Act: the creation of a new regulatory regime for derivatives trading. The literature on regulatory implementation emphasizes the preponderance of concentrated industry actors compared to other groups. The CFTC’s effort to create a new regulatory regime for the derivatives business allows us to compare the commenting activity of the large investment banks to a broad range of firms and other organizations. We develop a more fine-grained typology of industry segments and non-industry groups than other studies of implementation. By combining this typology with a topic-modeling approach, we can systematically map commonalities and divergences among different commenters. We find that the complex cross-cutting patterns within the industry sector are far less conspicuous than a clear cleavage in the willingness of different types of commenters to address the moral dimensions of market behavior.

Keywords: financial regulation, policy implementation, interest groups, derivatives, topic modeling, moral contestation