Structural Reform to Derivatives Market: General Aspects and Regulatory Framework Ligia Catherine Arias Barrera PhD Candidate- University of Warwick Queen Mary University of London, Postgraduate Conference 2013: Reinvigorating Legal Thought in Times of Change 6th June 2013

Structure Part 1: Generalities Financial Derivatives Market structure Relevance of the market

Structure Part 2: The issue Formal Regulators in US and UK Informal Regulators: the role of ISDA Private Law Integration

Generalities Definition ‘A financial instrument whose value is derived from the performance of an underlying asset`1 1. Alastair Hudson, Credit Derivatives: law, regulation and accounting issues (Sweet and Maxwell, 1999) 63

Regulated and Supervised Market Structure EXCHANGES Standardised Regulated and Supervised OVER THE COUNTER Non- Standardised Self-Regulated

Relevance of the market Concentration------Systemic Risk

The Issue Formal Regulators United States: Federal Reserve Department of Treasury Securities and Exchange Commission (SEC) Commodity Futures Trading Commission (CFTC)

The issue United Kingdom Previously Financial Services Authority (FSA) From April 2013: Bank of England- Financial Policy Committee Prudential Supervision Authority (PRA) Financial Conduct Authority (FCA)

The issue Informal Regulator International Swaps and Derivatives Association ISDA2 + Association was founded in 1985 with the mission to work for safe and efficient OTC derivatives market + Membership was progressively broad up reaching over 840 members 2. http://www2.isda.org/about-isda/ accessed 3rd march 2013

The issue Functions Two forms of private law integration The use of ISDA Master Agreement Influence on national regulation3 4. The objective of safe harbours is to facilitate the smooth execution and settlement of OTC derivatives contracts irrespective of whether the intention of the parties to the agreement is to hedge or speculate and irrespective of whether one of the parties to the agreement becomes insolvent’ ibid To facilitate the settlement of ‘safe harbours’ ISDA offers a Model Netting Law and implementation guide to assist national authorities. ‘The model addresses immunity from conventional insolvency procedures and exemptions from relevant gambling legislation.’ ibid 19.

The issue Techniques3 Legislative Method Common law Method 3. Biggins and Scott nominated them as Legislative Method and Common Law Method as part of the juridification of the Regulatory Space. John Biggins and Collin Scott, ‘Extending and contracting jurisdictions in a transnational private regulatory regime: efficiency, legitimacy, ISDA and the Derivatives Markets’ (2011) UCD Working Papers in Law, Criminology & Socio-Legal Studies Research Paper No. 51/2011, November 1, 6 http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1952582 accessed 2nd November 2012

The issue Fragmented regulatory space4 Three Questions: Effectiveness Legitimacy Accountability Collin Scott, ‘Analysing Regulatory Space: Fragmented Resources and Institutional Design’ (2001). Public Law 329 http://eprints.lse.ac.uk/18594/ accessed 2nd November 2012

The issue Two important regulatory changes and challenges ISDA representing significant regulatory force? Greater prominence of Central Counterparties CCPs and Trade Repositories TRs

Ligia Catherine Arias Barrera Thanks Ligia Catherine Arias Barrera PhD candidate- Financial Law University of Warwick Web: http://works.bepress.com/ligiacatherine_ariasbarrera/ Warwick ePortfolio: http://go.warwick.ac.uk/ep/pg/larmab Blog: http://financeandcorporatelaw.blogspot.co.uk