Potential Impact of the New Post-Crisis Regulatory Approach to Financial Derivatives

Abstract:

In the aftermath of the global financial crisis efforts have been made by G-20 to address the drawbacks of the regulatory framework in which the financial system operates. As financial derivatives exacerbated the crisis, a significant emphasis in the working agenda has been put on the reframing the regulatory environment in which derivatives are traded. This article focuses on the regulatory measures adopted in the EU and the US.

Having observed that the regulatory reform is likely to have positive effects in such areas as counterparty credit risk exposure, market transparency, liquidity etc., as well as having identified some fields of concern as to regulatory arbitrage, increased transaction costs or accumulation of substantial credit risks by central counterparties, the article arrives at the conclusion that the most evident 'gap' of the reform is a failure to address the speculation with 'naked' derivatives. In the light of the cost-benefit analysis of the 'purely' speculative derivatives, it is argued that this gap of the global regulatory reform could be filled with the re-introduction of the common-law judicial rule against differences. In order for this rule to be effective in the 21st century the article comes out with specific suggestions on its improvement.