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Policy Perspectives on OTC Derivatives Market Infrastructure

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  • Duffie, Darrell

    (Stanford University)

  • Li, Ada

    (Federal Reserve Bank of New York)

  • Lubke, Theo

    (Federal Reserve Bank of New York)

Abstract

In the wake of the recent financial crisis, over-the-counter (OTC) derivatives have been blamed for increasing systemic risk. Although OTC derivatives were not a central cause of the crisis, the complexity and limited transparency of the market reinforced the potential for excessive risk-taking, as regulators did not have a clear view into how OTC derivatives were being used. We discuss how the New York Fed and other regulators could improve weaknesses in the OTC derivatives market through stronger oversight and better regulatory incentives for infrastructure improvements to reduce counterparty credit risk and bolster market liquidity, efficiency, and transparency. Used responsibly with these reforms, over-the-counter derivatives can provide important risk management and liquidity benefits to the financial system.

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Bibliographic Info

Paper provided by Stanford University, Graduate School of Business in its series Research Papers with number 2046.

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Date of creation: Jan 2010
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Handle: RePEc:ecl:stabus:2046

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Cited by:
  1. Qiu, Jiaping & Yu, Fan, 2012. "Endogenous liquidity in credit derivatives," Journal of Financial Economics, Elsevier, Elsevier, vol. 103(3), pages 611-631.
  2. Neuner, Stefan & Schäfer, Klaus, 2011. "Zentrale Gegenparteien für den außerbörslichen Derivatehandel in der Praxis," Bayreuth Working Papers on Finance, Accounting and Taxation (FAcT-Papers) 2011-02, University of Bayreuth, Chair of Finance and Banking.
  3. Patricia C. Mosser & Joseph Tracy & Joshua Wright, 2013. "The capital structure and governance of a mortgage securitization utility," Staff Reports, Federal Reserve Bank of New York 644, Federal Reserve Bank of New York.
  4. Awrey, Dan, 2013. "Toward a supply-side theory of financial innovation," Journal of Comparative Economics, Elsevier, vol. 41(2), pages 401-419.
  5. Jorge Cruz Lopez & Jeffrey Harris & Christophe Hurlin & Christophe Pérignon, 2014. "CoMargin," Working Papers halshs-00979440, HAL.
  6. Markose, Sheri & Giansante, Simone & Shaghaghi, Ali Rais, 2012. "‘Too interconnected to fail’ financial network of US CDS market: Topological fragility and systemic risk," Journal of Economic Behavior & Organization, Elsevier, Elsevier, vol. 83(3), pages 627-646.

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