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Danger on the exchange: How counterparty risk was managed on the Paris exchange in the nineteenth century

  • Riva, Angelo
  • White, Eugene N.

In 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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File URL: http://www.sciencedirect.com/science/article/pii/S0014498311000167
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Article provided by Elsevier in its journal Explorations in Economic History.

Volume (Year): 48 (2011)
Issue (Month): 4 ()
Pages: 478-493

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Handle: RePEc:eee:exehis:v:48:y:2011:i:4:p:478-493
DOI: 10.1016/j.eeh.2011.05.002
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/622830

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  1. Gorton, Gary B., 2010. "Slapped by the Invisible Hand: The Panic of 2007," OUP Catalogue, Oxford University Press, number 9780199734153, December.
  2. Eugene N. White, 2007. "The Crash of 1882, Counterparty Risk, and the Bailout of the Paris Bourse," NBER Working Papers 12933, National Bureau of Economic Research, Inc.
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  6. Pierre-Cyrille Hautcoeur & Angelo Riva, 2007. "The Paris financial market in the 19th century: an efficient multi-polar organization?," PSE Working Papers halshs-00587812, HAL.
  7. Stulz, Rene, 2010. "Credit default Swaps and the Credit Crisis," Economic Policy, Russian Presidential Academy of National Economy and Public Administration, vol. 6, pages 157-175.
  8. Richard S. Grossman, 2010. "Unsettled Account: The Evolution of Banking in the Industrialized World since 1800," Economics Books, Princeton University Press, edition 1, number 9219.
  9. James T. Moser, 1998. "Contracting innovations and the evolution of clearing and settlement methods at futures exchanges," Working Paper Series WP-98-26, Federal Reserve Bank of Chicago.
  10. Eugene N. White, 2007. "The Crash of 1882 and the Bailout of the Paris Bourse," Cliometrica, Journal of Historical Economics and Econometric History, Association Française de Cliométrie (AFC), vol. 1(2), pages 115-144, July.
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  12. René M. Stulz, 2009. "Credit Default Swaps and the Credit Crisis," NBER Working Papers 15384, National Bureau of Economic Research, Inc.
  13. Bernanke, Ben S, 1990. "Clearing and Settlement during the Crash," Review of Financial Studies, Society for Financial Studies, vol. 3(1), pages 133-51.
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  15. Randall S. Kroszner, 2006. "Central counterparty clearing: history, innovation, and regulation: a speech at the European Central Bank and Federal Reserve Bank of Chicago Joint Conference on Issues Related to Central Counterparty," Speech 181, Board of Governors of the Federal Reserve System (U.S.).
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