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Regulating Financial Derivatives

Clearing and Central Counterparties

Alexandra G. Balmer

This book puts forward a holistic approach to post-crisis derivatives regulation, providing insight into how new regulation has dealt with the risk that OTC derivatives pose to financial stability. It discusses the implications that post crisis regulation has had on central counterparties and the risk associated with clearing of OTC derivatives. The author offers a novel solution to tackle the potential negative externalities from the failure of a central counterparty and identifies potential new risks arising from post crisis reforms.
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Chapter 7: Regulatory analysis

Alexandra G. Balmer


The seventh chapter provides an in-depth analysis of the challenges CCPs currently face, not only in light of regulation, but also arbitrage, moral hazard, information asymmetry, adverse selection and the too-big-to-fail problematics. Based on the determined shortcomings, a novel solution is recommended: to mandate CCPs to join a global default fund, which is funded through industry-based contributions.

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