8 IOSCO Technical Committee Task Force on OTC DerivativesRegulation, “Terms of Reference”. 9 Such supervisors consist of the Board of Governors of the Federal Reserve System, Connecticut State Banking Department, Federal Deposit Insurance Corporation, Federal Reserve Bank of New York, Federal Reserve Bank of Richmond, French Secrétariat Général de la Commission Bancaire, German Federal Financial Supervisory Authority, Japan Financial Services Agency, New York State Banking Department, Office of the Comptroller of the Currency, Securities and Exchange Commission, Swiss Financial Market Supervisory Authority and United Kingdom Financial Services Authority.
The fourth set of questions concerns the derivatives-based view of CDSs (chapter 4). This view has attracted much attention in the US, which is where the most relevant legislative reforms have taken place. Nevertheless, it will be seen that there relevant legal sources are both scarce and conceptually confusing. In fact, the current legal and regulatory environment is a puzzling mixture of conflicting elements. In order to make more sense of the situation, attention is here given to the legislative history of derivativesregulation (mainly in the US, which has marked the pace globally). In addition to the legislative outcomes, one wishes to understand the principal factors that have shaped those outcomes. Among the various influence factors, the greatest attention here is given to the activities of the International Swaps and Derivatives Association (ISDA), which has been identified as the principal behind-the-scenes driver of the current legislative framework. The post-crisis Dodd-Frank legislation is also carefully examined, not only because it sets one of the main contexts for current policy evaluation, but also because it embodies intruiguing tensions concerning the legal classification of credit default swaps. It will also be seen that this question, which reflects a kind of political interpretation of the derivatives classification of CDSs, in a sense closes the circle of the legal-doctrinal perspective, as it sheds further light on the first question that was posed at the beginning, namely why there is such confusion surrounding this issue.
This chapter has analyzed dealer banks’ dominant influence over the deregulation of OTC derivatives prior to 2008. The banks, whose preference was to keep intrusive regulation at bay, benefited from a unique factor constellation. Each of the six moderators identified in the analytical framework served as an open floodgate providing leverage for their influence to take hold. First, the industry benefited from maximum business unity, with conflict being virtually absent. This allowed ISDA and the banks to send an undiluted message about their preferences. Through the Master Agreement, ISDA also served as the monopoly provider of the market’s contractual infrastructure. Its success in having key jurisdictions adjust their legal framework such as to ensure compatibility with the contractual arrangements contained in the Master Agreement, allowed the banks to exercise structuring power in terms of shaping its exit options. This, in turn, endowed the industry with further structural power, and it frequently threatened to move the highly mobile uncleared business across the Atlantic to the City of London, if policy-makers did not heed bankers’ demands. Second, the dominance of the efficient market hypothesis made the risks of deregulation appear minimal, animating policy-makers to enter a race of competitive deregulation in terms of each jurisdiction striving to attract as much market share as possible. Third, the banks also benefited from the fact that public issue salience was generally low, and that warnings against the risks of deregulation never succeeded in mobilizing a critical audience. Following sudden spikes of issue salience, the industry’s central position within the transnational policy community allowed for a joint bank-regulator effort to tame the risk of public intervention, keep the CFTC in check at the domestic institutional level, and to subsequently enshrine the unregulated status of OTC derivatives through the adoption of corresponding legislation. The high complexity of derivatives also meant that policy-makers willingly relied on the information the banks supplied them with. The nature of inter-state power relations between policy-makers never challenged the deregulation course, and in the case of the SEC even further promoted it. The domestic institutional environment was also benign for dealer bank influence to take hold. In the US, the CFTC several times tried to regulate the market, but was reined in by the other agencies which had all largely embraced the deregulation course as part of their institutional identity.
3) Although the United States has led in reforming its financial regulation, other major financial centers includ ing Europe and the United Kingdom have also undertaken major reforms, or are in the process of doing so. There are substantial divergences between the various approaches adopted. In the United States, for example, the Volcker Rule would enforce a separation between traditional, deposit-taking banking organiz ations and those that engage in proprietary trading and private equity investment ( see infra text accompan ying notes 46-53). In the United Kingdom, on the other hand, the government is preparing to apply the recommendations of the Vickers Report, which would not enforce complete separation but would rather "ring fence"the deposit-taking elements of a financial conglomerate from its more risky securities trading elements. See, e.g., Indep. Comm’n on Banking, Final Report: Recommendations (2011) [hereinafter Vick ers Report], available at http://www.hm-treasury.gov.uk/d/ICB-Final-Report.pdf. See also, e.g., HM Treas., Dep’t for Bus. Innovation & Skills, Banking Reform: Delivering Stability and Supporting a Sustainable Econ omy (2012) (U.K.), available at http://www.hm-treasury.gov.uk/d/whitepaper_banking_ reform_140512.pdf (stating British Government proposals for implementation). In Europe, the Liikanen Commission has recent ly proposed a hybrid of the U.S. and U.K. models. See High-Level Expert Group on Reforming the Struct ure of the EU Banking Sector, Final Report (2012) (EU) [hereinafter Liikanen Report], available at http://ec. europa.eu/internal_market/bank/docs/high-level_expert_group/report_en.pdf.
The G-30 study was essentially the first of many on the subject of OTC derivatives. It affected the policy discussion and made responsible self-regulation the focal point. The G-30 promoted its conclusions by addressing its audience, part of which was already within the G- 30 community (either as members, study group participants or invited guests). The G-30 also relied on the existing understanding among public and private sector officials in the financial markets to get its message across. Furthermore, the timing of the study meant that the work of the group was sought at a time of uncertainty. In this context, and judging from the positive response that it received, it is hardly surprising to see its recommendations replicated in the studies of major international organisations. Dealing specifically with this topic, two important reports were made public a year after the work of the G-30 was put forward, produced by the Basle Committee and the Technical Committee of IOSCO. They closely followed the recommendations of the G-30 and based their findings on consultation with the public and the private sector, the latter also responsible for providing information for the G- 30 study. These reports emphasized that they were issuing guidelines based on the practices of major institutions (Basle Committee, 1994: 1) rather than ‘normative standards’ (IOSCO, 1994: 72), and their guidance followed the G-30 lead on issues such as the role and responsibilities of senior management, the importance of having a concerted derivatives strategy, managed by independent risk-management units and the question of risk measurement. In both reports, regulators and supervisors showed reluctance to interfere in the derivatives markets, offering a hands-off stance and focusing on industry standards (Basle Committee, 1994 and IOSCO, 1994). This self-regulatory approach has been carried through in subsequent reports by these organisations.
The Act contains an amendment to Section 22(a) of the CEA, entitled “Legal Certainty for Swaps,” intended to remove doubt as to the legality or enforceability of contracts newly subject to regulation that may not meet certain requirements, including clearing requirements, under the CEA. The provision further provides, with express reference to long-term swaps entered into prior to enactment of the Derivatives Title, that neither the enactment nor any provision or requirement of the Derivatives Title will constitute “a termination event, force majeure, illegality, increased costs, regulatory change, or similar event under a swap (including any related credit support arrangement) that would permit a party to terminate, renegotiate, modify, amend, or supplement one or more transactions under the swap.” This provision may have the intended effect of providing parties to pre-enactment swaps with some protection against having their swaps summarily terminated or pricing changed on the basis that
State Higher Educational Institution «Ukrainian Academy of Banking of the National Bank of Ukraine», Sumy, Ukraine Derivatives market is an important segment of the stock market in developed countries. It largely provides pricing on underlying assets that form the basis of its product – derivative financial instruments, thereby objectively reflecting market expectations of economic agents. Thus, trading derivatives is related to uncertainty, as the actual transaction takes place only in some time. This fact requires the development of an effective mechanism for regulation of the derivatives market to provide assurance of the key participants of such agreements. In this connection, the author of the article analyzes the theoretical aspects of the modern system of derivatives market regulation in Ukraine. To study this system in complex two subsystems, namely governmental regulation and self-regulation were analyzed. Each of these subsystems was examined by the author in terms of their key components (subjects, objects, functions, tasks, methods, tools and forms of operation). Besides, the main connections between these subsystems were investigated and the basic laws of their development were discovered. The detailed analysis of the modern system of derivatives market regulation in Ukraine allowed the author to present the mechanism of regulation of this financial market segment graphically as a system consisting of two subsystems supplementing each other. A systematic study of the mechanism of the derivatives market regulation will allow us to define the main directions of its development. Improving the functioning of this mechanism will not only facilitate smooth functioning of this market, but also ensure its sustainable development. Key words: the market derivatives, derivatives market regulators, forms and methods of regulation, self-regulation.
All Market Makers i.e. Banks and Primary Dealers admitted as Members of Rupee Derivatives Trade Reporting Platform who are also Members of Securities Settlement Segment of CCIL are eligible to participate in the guaranteed settlement subject to completion of documentation formalities. The terms of guarantee and the processes would be governed by CCIL’s Bye-laws, Rules and Regulations of the segment.
Whenever they can, banks seek guarantees—from their own govern- ment (in the United States, from the official Export - I m p o rt Bank or the Overseas Private Investment Corporation), from the government of the c o u n t ry where the borrower is domiciled, from any group owner or aff i l- iate of the borrowing entity (be it a major international corporation or a Korean c h a e b o l), or from some other co-signer. Such guarantees can replace credit analysis by the bank extending the loan. More o v e r, traders have developed derivatives—financial instruments that draw their value not from their claim on real re s o u rces or income flows but f rom the relative values of other financial devices, some of which mix i n t e rest rate risk, credit risk, and foreign exchange risk into an amor- phous swap of “total re t u rns.” Where one side of the swap involves gov- e rnment debt issued by major deve loped countries, total re t u rn derivatives have enabled banks to convert what would otherwise be seen as suspect credits into high-rated instruments. The menace of the swap is concealed by its apparent collateralization with U.S. Tre a s u ry p a p e r. Because no asset is acquired in a derivative, the transaction can be accounted for off the balance sheet. To the extent that these deriva- tives are arranged as aspects of syndicated loans, a number of banks can be participants in a credit risk that has not been recognized in anyone’s published accounts.
Two strategies have been pursued during this period by regulatory authorities to harness market forces in support of their regulatory. First, international regulatory bodies have frequently sought to take advantage of the supposed greater flexibility and sensitivity to market developments of industry self-regulation by providing their seal of approval to the codes of best practices drafted by financial industry associations and incorporating them into their international regulatory initiatives. Moreover in those cases where industry- driven initiatives were inadequate or non-existing, they have not hesitated to solicit industry groups to revise the existing self-regulatory initiatives or to draft new ones, often relying on the threat of introducing formal regulation in the case the private sector had failed to meet regulators’ expectations. For instance, the report published by the FSF on the regulation of hedge funds called upon the hedge fund industry to draft a set of sound practices to improve risk management, internal controls, and disclosure of relevant information to their counterparties. In 2007 the FSF renewed its calls on the hedge fund industry to review the existing sound practice benchmarks for hedge fund managers in
The thesis addresses three research questions. The first question is why transactions of over-the-counter derivatives between financial institutions and end-users are vulnerable to “mis-selling”. To answer this question, some understanding about the products transacted, participants of the markets and the practice of transactions is required. Hence the thesis begins by taking a look at basic derivative products such as options and forwards and then examines in the nature of some of more complicated products. Then the thesis analyses the nature and characteristics of different groups of participants in the over-the- counter markets. This analysis of the products and the participants shows how some end- users are dependent on the sellers, i.e. financial institutions. Then, an examination of transaction practices explains the conflicts of interest between the financial institution, its sales representatives and end-users. This question and the answer to it will be discussed in Chapter II.
A novel series of benzophenone amide derivatives (8a-j) were synthesized, and evaluated for their anticancer activity against human cancer cell lines like MCF-7, MDA MB-231(Breast cancer), A549 (Lung cancer). All the synthesized derivatives are first reported and adriamycin used as reference drug. Among the compounds, compounds 8b, 8h and 8j were showed more potent anticancer activity than control.
Pension liabilities are typically linked to a COLI for their schemes participants. Not surprisingly many pension funds have investments in ILBs. Inflation derivatives provide alternative strategies for pension fund managers than the option of purchasing ILBs to match inflation linked liabilities. Mismatches in maturity, index, profile and size can be overcome with the use of inflation derivatives resulting in a more precise hedge. In general pension funds tend to apply inflation derivatives when real rates are neither high nor low. Figure 10 depicts three scenarios of low, mediocre and high real rates. In each of these scenarios there are obvious rationales about the application of inflation derivatives. The use of inflation derivatives increases from scenario one, when real rates are zero, to a zenith in scenario two, when a mediocre level of real rates is present. From that point the use of inflation derivatives drops towards no use in scenario three when real rates are historically unrivaled.
Hilferding was one of the exceptions to this long theoretical thread of ignorance. He writes in the beginning of the 20th century where futures markets have been widely established in the developed capitalist economies. 4 As we shall see below, his approach is focused on the futures market for tangible commodities, underestimating somehow the role of derivatives on financial securities. But even with this limitation, his embarking upon an analysis of derivatives remains an exceptional theoretical project, not only in the discussions of the period but also in the political economy in general. He analyzes this development as parallel in importance with the development of the stock exchange. He is able to closely watch financial innovations and the changes in the organization of finance. He lives in Berlin which as capital of newly unified Germany “grew rapidly as a commercial and financial centre, eclipsing Frankfurt as financial capital of the German Empire. [...] The growth of Berlin seemed to be a case of financial power following political power. Banks formerly headquartered in Frankfurt moved to Berlin, and the Reichbank, the central bank of the German Empire, resided in Berlin” (Allen, 2001, p. 62).