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The Derivatives Revolution: A Trapped Innovation and a Blueprint for Regulatory Reform

ISBN13: 9789041134301
Published: May 2011
Publisher: Kluwer Law International
Country of Publication: The Netherlands
Format: Hardback
Price: £126.00

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It is now widely recognized that an uncontrolled “derivatives revolution” triggered one of the most spectacular worst-case scenarios of modern times. This book – the most cogent legal analysis of the subject yet to appear in any language – lays bare the core role played by the failure to adequately regulate derivatives in the financial crisis of recent years.

The author’s insistence that derivatives must be viewed not as profit-seeking investments but as risk management tools – and his well-grounded prescriptions to ensure that they are regulated in that way – sheds clear light on the best way for companies, financial institutions, and hedge funds to move forward in their use of these useful but highly hazardous instruments.

This book clearly shows how such elements as the following fit into the legal analysis of derivatives, and how proper regulation will preserve their usefulness and economic value:-

  • derivatives allow for the most efficient and cost-effective risk fractioning, hence risk taking, techniques ever conceived;
  • derivatives allow for all measurable and identifiable risks that may exist in modern finance;
  • the ability to isolate risks and insure against risk exposures is the key to the very survival of modern financial markets;
  • risk buyers effectively take on financial exposure to various types of risk while hedgers unload unwanted exposures;
  • derivatives allow domestic investors to acquire exposure to foreign markets without the necessity of dealing with foreign laws, foreign investments, currency exchange, or foreign fiscal regimes;
  • derivatives increase social welfare by making it easier and less expensive to carry out many types of financial transactions;
  • derivatives allow governments to insulate, manage, hedge or concentrate risks deriving from financial, meteorological, and even geopolitical exposure; and
  • derivatives allow radical changes to financial and risk structure to be performed silently and rapidly.
To the question: how do we ensure that a company trading derivatives is regulated effectively? this work offers a clear and convincing answer. The author’s detailed recommendations for regulatory and corporate governance measures are designed to prevent excessive risk taking, the emergence of rogue traders, and ultimately the emergence of another systemic disturbance caused by chains of derivatives-related losses. Company lawyers, regulators, and other concerned parties will welcome this positive and very timely book.

Banking and Finance
About the Author
List of Abbreviations
Part I Fundamental Issues
Chapter 1 Derivatives: The Basics
Chapter 2 Who Uses Derivatives and How
Chapter 3 Systemic Risk: The Rationale for Derivatives Regulation
Part II Laying the Groundwork for Regulatory Intervention
Chapter 4 Derivatives: The Foundation
Chapter 5 Regulation of Derivatives before the Adoption of the Dodd-Frank Wall Street Reform and Consumer Protection Act
Chapter 6 What Have We Learned from the Past?
Part III A Plan of Action
Chapter 7 A Proposed Quadripartite Approach to Comprehensive Derivatives Regulation
Chapter 8 The Crisis of the Disclosure Paradigm: Rethinking the Role of Disclosure Based Regulation (Pillar 2)
Chapter 9 Strengthening Derivatives Infrastructures: a Structural Reform (Pillar 3)
Chapter 10 Corporate Governance and Compensation Policies (Pillar 4)
Part IV A Solution?
Chapter 11 The Structure and Features of the Wall Street Transparency and Accountability Act of 2010

Series: International Banking and Finance Law Series

The Law and Governance of the Asian Infrastructure Investment Bank ISBN 9789403506319
Published November 2018
Kluwer Law International
Rethinking Regulation of International Finance: Law, Policy and Institutions ISBN 9789041188380
Published January 2018
Kluwer Law International
Capital Structure and Corporate Governance: The Role of Hybrid Financial Instruments ISBN 9789041148438
Published August 2013
Kluwer Law International
Standby Letters of Credit in International Trade ISBN 9789041145604
Published December 2012
Kluwer Law International
From Crisis to Crisis: The Global Financial System and Regulatory Failure ISBN 9789041133540
Published September 2011
Kluwer Law International
Structured Finance, On from the Credit Crunch: The Road to Recovery ISBN 9789041127877
Published October 2009
Kluwer Law International
International Financial System: Policy and Regulation ISBN 9789041128683
Published January 2009
Kluwer Law International
Securitization Law and Practice: In the Face of the Credit Crunch ISBN 9789041127150
Published August 2008
Kluwer Law International
International Financial System: Policy and Regulation ISBN 9789041127464
Published June 2008
Kluwer Law International
Price on Application
Banking Laws in China ISBN 9789041125194
Published June 2007
Kluwer Law International
International Securities Markets: Insider Trading Law in China ISBN 9789041125576
Published September 2006
Kluwer Law International
United States Securities Law: A Practical Guide 3rd ed ISBN 9789041123626
Published August 2006
Kluwer Law International
Innovation in Securitisation Yearbook 2006 ISBN 9789041125330
Published June 2006
Kluwer Law International
The European Central Bank ISBN 9789041106865
Published May 1997
Kluwer Law International