Diverging derivatives: Law, governance and modern financial markets

This paper examines the institutional, political and regulatory history of U.S. derivatives markets from the 1980s until the financial crisis of 2008 to understand the divergence between exchange-traded derivatives and over-the-counter derivatives. Although exchanges like the Chicago Mercantile Exch...

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Bibliographic Details
Published in:Journal of Comparative Economics 2013-05, Vol.41 (2), p.386-400
Main Author: Carruthers, Bruce G.
Format: Article
Language:English
Subjects:
Derivatives
Exchange-traded derivatives
Financial regulation
OTC derivatives
Regulation of financial institutions
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Summary:This paper examines the institutional, political and regulatory history of U.S. derivatives markets from the 1980s until the financial crisis of 2008 to understand the divergence between exchange-traded derivatives and over-the-counter derivatives. Although exchanges like the Chicago Mercantile Exchange and Chicago Board of Trade were powerful market incumbents with strong political connections, they were eclipsed by the over-the-counter market. The latter remained unregulated, despite numerous attempts to do so, and grew to enormous size. With such growth, the political decision not to regulate became increasingly irreversible, even in the face of events like the failure of Long Term Capital Management. The implications for law and the politics of financial regulation are discussed.
ISSN:0147-5967
1095-7227
DOI:10.1016/j.jce.2013.03.010