Danger on the exchange: How counterparty risk was managed on the Paris exchange in the nineteenth century
AbstractIn the nineteenth century, the Paris Bourse struggled to manage counterparty risk, revealing the awkward choices for the regulation of derivatives markets. The exchange, primarily a forward market, instituted a mutual guarantee fund to prevent broker failures from snowballing into a liquidity crisis. The fund then forced the Bourse to search for mechanisms to control moral hazard. With new archival data, we describe the evolving regulatory regime and analyze the determinants of broker failures. The Bourse faced a conundrum; when it finally imposed a tight regulatory regime that limited risk, trading began to migrate off the exchange to less regulated markets.
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Bibliographic InfoArticle provided by Elsevier in its journal Explorations in Economic History.
Volume (Year): 48 (2011)
Issue (Month): 4 ()
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Web page: http://www.elsevier.com/locate/inca/622830
Stock exchange; Counterparty risk; Regulation; Microstructure; Paris; XIX century;
Find related papers by JEL classification:
- G01 - Financial Economics - - General - - - Financial Crises
- G1 - Financial Economics - - General Financial Markets
- G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
- N23 - Economic History - - Financial Markets and Institutions - - - Europe: Pre-1913
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