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OTC derivatives, the courts and regulatory reform

Braithwaite, Jo (2012) OTC derivatives, the courts and regulatory reform. Capital Markets Law Journal, 7 (4). pp. 364-385. ISSN 1750-7219

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Abstract

•Most recently valued at $648 trillion, the over-the-counter (OTC) derivatives markets are vast, global and systemically important. About 90 per cent of these transactions are agreed on International Swaps and Derivatives Association’s (ISDA’s) standard terms, which provide for disputes to be resolved by the courts of England and Wales, or New York (though some parties amend this drafting). •This article presents research into all the available decisions of the English courts involving the ISDA standard terms. Analysis of this data demonstrates the courts’ capacity to provide a remedy for derivatives market participants in a very wide range of circumstances. It also shows how adjudication by the courts sustains the common law and increases transparency in the markets. •Triggered by the G20’s statements in the immediate aftermath of the crisis, regulators are now engaged in sweeping projects of reform in this sector. However, the impact of new rules on the courts has been overlooked. •The article argues that reforms targeting the OTC sector threaten to disrupt the role currently played by the courts in these markets. More specifically, a detailed examination of the internal rules of central counterparties (CCPs) suggests that requiring the bulk of OTC business to be cleared is very likely to reduce the numbers of OTC derivatives related cases coming before the national courts. Especially given regulators’ concern with transparency, the article concludes that these effects need to be considered urgently, and in detail, as part of the impact assessments accompanying regulatory reform.

Item Type: Article
Official URL: http://cmlj.oxfordjournals.org/
Additional Information: © 2012 The Author
Library of Congress subject classification: K Law > K Law (General)
Sets: Departments > Law
Rights: http://www.lse.ac.uk/library/usingTheLibrary/academicSupport/OA/depositYourResearch.aspx
Date Deposited: 02 Oct 2012 12:38
URL: http://eprints.lse.ac.uk/46494/

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