The Political Economy of Financial Market Regulation
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The Political Economy of Financial Market Regulation

The Dynamics of Inclusion and Exclusion

Edited by Peter Mooslechner, Helene Schuberth and Beat Weber

This book focuses on recent financial market reforms, and their implications for social, economic and political exclusion. In particular it considers the hitherto under-researched question of whose interests govern the design of regulatory mechanisms and who influences the decision-making process. This process is set out as contested terrain, in which there are winners and losers, and in which there are inevitably circles of exclusion. The authors, comprising financial authority experts and academic specialists, expand the concept of exclusion beyond its typical social dimension to incorporate all actors, be they individuals or institutions not permitted to contribute to financial market regulation as a public good. As they point out, this may take the form of political, economic or indeed cultural exclusion. The book examines the conflicts that arise between various interests and how these are managed within the process of regulation.
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Chapter 7: The Governance of OTC Derivatives Markets

Eleni Tsingou

Extract

7. The Governance of OTC Derivatives Markets Eleni Tsingou INTRODUCTION Over-the-counter (OTC) derivatives markets are an important component of transnational financial transactions and are thus significant when we consider the governance of the financial system. The volume of the market is a considerable part of global financial activity and is rapidly growing. Statistics on the OTC market show that at the end of 1990, the amount of outstanding contracts was an estimated USD 3.45 trillion. By the end of 1994 the amount had increased to USD 11.3 trillion (Bank for International Settlements 1996) and by the end of 1999 had reached USD 88.2 trillion (Bank for International Settlements 2000). In the most recent survey, the amount of outstanding contracts at the end of 2004 stood at USD 248 trillion (Bank for International Settlements 2005).1 The nature of the instruments has puzzled practitioners and regulators alike. Derivatives carry leverage: Most users are interested in derivatives because they allow them to hedge against risks, such as market and credit risks linked to interest and exchange rate variations or the solvency of counterparties. However, some users are undoubtedly taking some risk in handling them and arguably embrace risk in the pursuit of gains. Finally, derivatives contracts have over the years become increasingly complex and the OTC market has allowed the development of ever more specific and ‘personalized’ instruments; this has technical implications for oversight. Interest in OTC derivatives, both regulatory and in the private sector, grew in the early years of the...

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