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Public-Private Relations in a Transnational Private Regulatory Regime: ISDA, the State and OTC Derivatives Market Reform*

  • John Biggins (a1) and Colin Scott (a2)

Abstract

It has frequently been claimed that over-the-counter (OTC) derivatives were, by and large, not directly regulated in the largest markets immediately prior to the global financial crisis (GFC). While there is an element of truth in this contention, it betrays the more complex interactions between public legislators and influential transnational private trade associations, most notably the International Swaps and Derivatives Association (ISDA), both prior to the GFC and in the wake of it. ISDA, its members and national governments interact on the basis of legal and policy tradeoffs which are ostensibly related to OTC derivatives' regulatory treatment but which, in reality, extend beyond this. The fact of these interactions between ISDA and nation states may raise less regulatory legitimacy challenges than some of the norms which are communicated. A prime example is the public transposition of ‘safe harbours’ which insulate OTC derivatives, including ‘purely speculative’ contracts, from the full force of gambling law. It is thus suggested that while the regulatory role and expertise of ISDA should be formally recognised and appropriately harnessed by public actors in the creation of a new public-private regulatory détente in the OTC derivatives markets, a review of the appropriateness of the current legal treatment of purely speculative derivatives should be a priority for any such regulatory regime.

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An earlier version of this paper was presented at the workshop ‘The Regulatory Challenge of OTC Derivatives’ held in Dublin in May 2011. We are very grateful to participants for comments, particularly Blanaid Clarke. We are also grateful to Eric Helleiner and Keith Blizzard. This paper is derived from a larger case study with which the authors were involved at the University College Dublin (UCD) Centre for Regulation and Governance from September 2010 to October 2011 entitled ‘Regulating OTC Derivatives for Better Corporate Governance’. That case study, in turn, formed part of a broader research initiative involving a consortium of universities, including UCD, entitled ‘Transnational Private Regulation: Constitutional Foundations and Governance Design’, led by Fabrizio Cafaggi, European University Institute (<http://privateregulation.eu>). The broader initiative was funded by the Hague Institute for the Internationalisation of Law (HILL) (<http://www.hiil.org>). The authors wish to acknowledge the support of HILL, Blanaid Clarke and other researchers on the HILL initiative, as well as the contributions of a number of anonymous interviewees in the broader research. Any views expressed in this paper, the broader case study, as well as related papers and materials are the personal views of the authors alone and do not necessarily represent the views of any other individual or organisation to which the authors are affiliated. Errors and omissions are also the authors' alone. This version was completed in early July 2012 and is not reflective of subsequent developments.

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* An earlier version of this paper was presented at the workshop ‘The Regulatory Challenge of OTC Derivatives’ held in Dublin in May 2011. We are very grateful to participants for comments, particularly Blanaid Clarke. We are also grateful to Eric Helleiner and Keith Blizzard. This paper is derived from a larger case study with which the authors were involved at the University College Dublin (UCD) Centre for Regulation and Governance from September 2010 to October 2011 entitled ‘Regulating OTC Derivatives for Better Corporate Governance’. That case study, in turn, formed part of a broader research initiative involving a consortium of universities, including UCD, entitled ‘Transnational Private Regulation: Constitutional Foundations and Governance Design’, led by Fabrizio Cafaggi, European University Institute (<http://privateregulation.eu>). The broader initiative was funded by the Hague Institute for the Internationalisation of Law (HILL) (<http://www.hiil.org>). The authors wish to acknowledge the support of HILL, Blanaid Clarke and other researchers on the HILL initiative, as well as the contributions of a number of anonymous interviewees in the broader research. Any views expressed in this paper, the broader case study, as well as related papers and materials are the personal views of the authors alone and do not necessarily represent the views of any other individual or organisation to which the authors are affiliated. Errors and omissions are also the authors' alone. This version was completed in early July 2012 and is not reflective of subsequent developments.

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Public-Private Relations in a Transnational Private Regulatory Regime: ISDA, the State and OTC Derivatives Market Reform*

  • John Biggins (a1) and Colin Scott (a2)

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