Download or read book Over the counter Derivatives and Systemic Risk to the Global Financial System written by Michael R. Darby and published by . This book was released on 1994 with total page 44 pages. Available in PDF, EPUB and Kindle. Book excerpt: Over the last decade dealing in derivative financial instruments (basically forwards, futures, options and combinations of these), particularly in the over-the-counter (OTC) derivatives market has become a central activity for major wholesale banks and financial institutions. Measured in terms of notional principal amount, OTC derivatives outstanding are near, if not greater than, US$10 trillion, even after deduction of double-counting for intra-dealer transactions. Major new regulatory initiatives, including proposed new capital requirements, are under consideration as a means of reducing systemic risk. This paper examines the concept of systemic risk -- that failure of one firm will lead to the failure of a large number of other firms or indeed the collapse of the international financial system. Alternative proposed definitions are considered and integrated and the effects of OTC derivatives on these risks discussed. The key conclusion is that systemic risk has been reduced by the development of the OTC derivatives market due to shifting economic risks to those better able either to bear the risk or, in many cases, cancel it against offsetting risks. The implications of the Basle II capital proposals for systemic risk are analyzed and shown to increase this risk due to encouraging transactions which increase portfolio risks of the dealers and discouraging transactions which decrease their portfolio risk.
Download or read book Collateral Netting and Systemic Risk in the OTC Derivatives Market written by Mr.Manmohan Singh and published by International Monetary Fund. This book was released on 2010-04-01 with total page 17 pages. Available in PDF, EPUB and Kindle. Book excerpt: To mitigate systemic risk, some regulators have advocated the greater use of centralized counterparties (CCPs) to clear Over-The-Counter (OTC) derivatives trades. Regulators should be cognizant that large banks active in the OTC derivatives market do not hold collateral against all the positions in their trading book and the paper proves an estimate of this under-collateralization. Whatever collateral is held by banks is allowed to be rehypothecated (or re-used) to others. Since CCPs would require all positions to have collateral against them, off-loading a significant portion of OTC derivatives transactions to central counterparties (CCPs) would require large increases in posted collateral, possibly requiring large banks to raise more capital. These costs suggest that most large banks will be reluctant to offload their positions to CCPs, and the paper proposes an appropriate capital levy on remaining positions to encourage the transition.
Download or read book Over the counter Derivatives and the Systematic Risk to the Global Financial System written by Michael R. Darby and published by . This book was released on 1994 with total page 31 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book OTC Derivatives Bilateral Trading and Central Clearing written by David Murphy and published by Springer. This book was released on 2013-08-07 with total page 315 pages. Available in PDF, EPUB and Kindle. Book excerpt: After the credit crisis, supervisors enacted a range of financial reforms. In particular, they radically changed the nature of the OTC derivatives market via a number of measures, notably mandatory central clearing. This book discusses the market before the crisis, explains what central clearing is, and outlines the consequences of the new rules.
Download or read book Regulating Financial Derivatives written by Alexandra G. Balmer and published by Edward Elgar Publishing. This book was released on 2018-06-29 with total page 256 pages. Available in PDF, EPUB and Kindle. Book excerpt: This book puts forward a holistic approach to post-crisis derivatives regulation, providing insight into how new regulation has dealt with the risk that OTC derivatives pose to financial stability. It discusses the implications that post crisis regulation has had on central counterparties and the risk associated with clearing of OTC derivatives. The author offers a novel solution to tackle the potential negative externalities from the failure of a central counterparty and identifies potential new risks arising from post crisis reforms.
Download or read book Modern Banking and OTC Derivatives Markets written by Mr.R. Sean Craig and published by INTERNATIONAL MONETARY FUND. This book was released on 2001-01-09 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: This chapter provides an overview of market practices, market structure, and official supervision and regulation in financial markets. This paper also highlights the key features of modern banking and over the counter (OTC) derivatives markets that seem to be relevant for assessing their functioning, their implications for systemic financial risks in the international financial system, and areas where improvements in ensuring financial stability can be obtained. The paper also describes how OTC derivatives activities have transformed modern financial intermediation and discusses how internationally active financial institutions have become exposed to additional sources of instability because of their large and dynamic exposures to the counterparty (credit) risks embodied in their OTC derivatives activities. In order to rebalance private and official roles, it is essential first to clarify the limits to market discipline in OTC derivatives markets, before leaning more heavily on aspects of market discipline that seem to work well in these markets.
Download or read book OTC Derivatives written by Chiara Oldani and published by . This book was released on 2017 with total page 27 pages. Available in PDF, EPUB and Kindle. Book excerpt: Over-the-counter (OTC) derivatives played an important role in the build-up of systemic risk in financial markets before 2007 and in spreading volatility throughout global financial markets during the crisis. In recognition of the financial and economic benefits of derivatives products, the Group of Twenty (G20), under the auspices of the Financial Stability Board (FSB), moved to regulate the use of OTC derivatives.Although a number of scholars have drawn attention to the detrimental effects of the United States and European Union (EU) to coordinate OTC reform, this overlooks an important aspect of the post-crisis process: the exemption of non-financial operators from OTC derivative regulatory requirements, especially Sovereigns. Critically, they remain exempt under existing legislation regardless of the risks they continue to pose through unreported trades and counterparty risks to financial firms; there is still uncertainty around the pricing of derivative (i.e., model risk) for non-financial operators that could pose a risk to the financial system. These, and similar inconsistencies in financial regulation pose risks of conflict and fragmentation that should be soon addressed by the G20.
Download or read book Derivative Financial Markets written by United States. Congress. House. Committee on Energy and Commerce. Subcommittee on Telecommunications and Finance and published by . This book was released on 1994 with total page 366 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book Reform of the Over the counter Derivative Market written by United States. Congress. House. Committee on Financial Services and published by . This book was released on 2010 with total page 224 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book The Effective Regulation of the Over the counter Derivatives Market written by United States. Congress. House. Committee on Financial Services. Subcommittee on Capital Markets, Insurance, and Government Sponsored Enterprises and published by . This book was released on 2009 with total page 216 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book Making OTC Derivatives Safe A Fresh Look written by Mr.Manmohan Singh and published by International Monetary Fund. This book was released on 2011-03-01 with total page 24 pages. Available in PDF, EPUB and Kindle. Book excerpt: Recent regulatory efforts, especially in the U.S. and Europe, are aimed at reducing moral hazard so that the next financial crisis is not bailed out by tax payers. This paper looks at the possibility that central counterparties (CCPs) may be too-big-to-fail entities in the making. The present regulatory and reform efforts may not remove the systemic risk from OTC derivatives but rather shift them from banks to CCPs. Under the present regulatory overhaul, the OTC derivative market could become more fragmented. Furthermore, another taxpayer bailout cannot be ruled out. A reexamination of the two key issues of (i) the interoperability of CCPs, and (ii) the cost of moving to CCPs with access to central bank funding, indicates that the proposed changes may not provide the best solution. The paper suggests that a tax on derivative liabilities could make the OTC derivatives market safer, particularly in the transition to a stable clearing infrastructure. It also suggests reconsideration of a "public utility" model for the OTC market infrastructure.
Download or read book Systemic Risk in the Financial Sector written by Douglas W. Arner and published by Cigi Press. This book was released on 2019 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: The 2008 global financial crisis brought the world's economy closer to collapse than ever before. Has enough been done to prevent another crisis?
Download or read book Central Counterparties written by Jon Gregory and published by John Wiley & Sons. This book was released on 2014-06-25 with total page 328 pages. Available in PDF, EPUB and Kindle. Book excerpt: Practical guidance toward handling the latest changes to the OTC derivatives market Central Counterparties is a practical guide to central clearing and bilateral margin requirements, from one of the industry's most influential credit practitioners. With up-to-date information on the latest regulations imposed after the global financial crisis, this book covers the mechanics of the clearing process and analyses the resulting consequences. Detailed discussion explains the ways in which the very significant clearing and margining rules will affect the OTC derivatives market and the financial markets in general, with practical guidance toward implementation and how to handle the potential consequences. Over-the-counter derivatives were blamed by many for playing a major role in the 2007 financial crisis, resulting in a significant attention and dramatic action by policymakers, politicians, and regulators to reduce counterparty credit risk which was seen as a major issue in the crisis. The two most important regulatory changes are the mandatory clearing of standardised OTC derivatives, and the requirements for bilateral margin posting in non-standard OTC contracts. Central Counterparties is a complete reference guide to navigating these changes, providing clarification and practical advice. Review the mitigation of counterparty credit risk with the historical development of central clearing Clarify the latest regulatory requirements imposed by Dodd-Frank, EMIR, Basel III and more Learn the mechanics of central clearing, with special attention to complex issues such as margin calculations, the loss waterfall, client clearing and regulatory capital rules Gain insight into the advantages and disadvantages of clearing and bilateral margin requirements, and the potential issues that arise As the clearing and margining mandates are phased in, the associated costs will be severe enough to dramatically shift the topology of the financial markets and transform the nature of risk. Central Counterparties provides the information, clarification and expert insight market practitioners need to get up to speed quickly.
Download or read book Over the counter derivates and systemic risk to the global financial system written by and published by . This book was released on 1994 with total page 31 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book Financial Derivatives and the Globalization of Risk written by Benjamin Lee and published by Duke University Press. This book was released on 2004-09-29 with total page 225 pages. Available in PDF, EPUB and Kindle. Book excerpt: The market for financial derivatives is far and away the largest and most powerful market in the world, and it is growing exponentially. In 1970 the yearly valuation of financial derivatives was only a few million dollars. By 1980 the sum had swollen to nearly one hundred million dollars. By 1990 it had climbed to almost one hundred billion dollars, and in 2000 it approached one hundred trillion. Created and sustained by a small number of European and American banks, corporations, and hedge funds, the derivatives market has an enormous impact on the economies of nations—particularly poorer nations—because it controls the price of money. Derivatives bought and sold by means of computer keystrokes in London and New York affect the price of food, clothing, and housing in Johannesburg, Kuala Lumpur, and Buenos Aires. Arguing that social theorists concerned with globalization must familiarize themselves with the mechanisms of a world economy based on the rapid circulation of capital, Edward LiPuma and Benjamin Lee offer a concise introduction to financial derivatives. LiPuma and Lee explain how derivatives are essentially wagers—often on the fluctuations of national currencies—based on models that aggregate and price risk. They describe how these financial instruments are changing the face of capitalism, undermining the power of nations and perpetrating a new and less visible form of domination on postcolonial societies. As they ask: How does one know about, let alone demonstrate against, an unlisted, virtual, offshore corporation that operates in an unregulated electronic space using a secret proprietary trading strategy to buy and sell arcane financial instruments? LiPuma and Lee provide a necessary look at the obscure but consequential role of financial derivatives in the global economy.
Download or read book Regulation and Supervision of the OTC Derivatives Market written by Ligia Catherine Arias-Barrera and published by Routledge. This book was released on 2018-05-11 with total page 280 pages. Available in PDF, EPUB and Kindle. Book excerpt: The over-the-counter (OTC) derivatives market has captured the attention of regulators after the Global Financial Crisis due to the risk it poses to financial stability. Under the post-crisis regulatory reform the concentration of business, and risks, among a few major players is changed by the concentration of a large portion of transactions in the new market infrastructures, the Central Counterparties (CCPs). This book, for the first time, analyses the regulatory response of the United Kingdom and the United States, the two largest centres of OTC derivatives transactions, and highlights their shortcomings. The book uses a normative risk-based approach to regulation as a methodological lens to analyse the UK regime of CCPs in the OTC derivatives market. It specifically focuses on prudential supervision and conduct of business rules governing OTC derivatives transactions and the move towards enhancing the use of central clearing. The resulting analysis, from a normative risk based approach, suggests that the UK regime for CCPs does not fulfil what would be expected if a coherent risk based approach was taken. Our comments on the Dodd-Frank Act highlight that the incoherent adoption of risk-based approach to regulation affects the effectiveness of the US regime for CCPs. Such a regime does not follow the pace of events of ‘innovation risk’; in particular, the foreseeable changes FinTech will bring to the OTCDM and central clearing services. The second inadequacy of the US regime concerns the dual regulatory structure of the CFTC and the SEC, and the inadequate adoption of different and not well-coordinated regulatory strategies. We also analyse the cross-border implications of the US regime for non-US CCPs that provide clearing services to US market participants. Finally, we study the negative effects of the absence of a clearly defined resolution regime for CCPs.
Download or read book The Power of Derivatives in the Global Financial System written by Maximilian A. Killinger and published by GRIN Verlag. This book was released on 2010-01-11 with total page 28 pages. Available in PDF, EPUB and Kindle. Book excerpt: Seminar paper from the year 2009 in the subject Economics - Monetary theory and policy, grade: A, City University London, language: English, abstract: This work is to discuss the role and power of derivatives in the global financial markets and their ability to reduce, diversify and enhance risks associated with international capital flows. During the last two decades derivatives, as fiscal instruments, experienced enormous growth and gained increasingly of importance. This is mainly due to their ability to allow the spreading of risks in cross border capital movements, making such investments more appealing and the diversification of portfolios more likely. Yet, derivative markets are controversial because they are not well known outside a small group of specialists. Most people look at them with suspicion and focus on their role as highly effective instruments for speculation. Given the leverage they provide fortunes can be made or lost in the wink of an eye. Although derivatives do not create anything it will be shown in the course of this study that the importance of derivatives lies in the fact that they can be used to reduce, diversify and control uncertainty and risks associated with various corporate activities, thus creating substantial benefits as well as complexities. Section one is going to define the most common derivative products before addressing their general purpose followed by exemplifying two principal risks aligned with the use of derivatives, namely credit- and market risk. Subsequently this works is going to discuss the positive as well as the negative effects derivatives may have on banks and investors. Sections five, six and seven will then illuminate systematic predicaments, address risks and eventually conclude after having considered the entanglement and market share of derivatives. Warren Buffett, Forbes-listed as the richest person in the world, has called credit derivatives financial weapons of mass destruction, carrying dangers that, while now latent, are potentially lethal. Nominally they are insurances against defaults, but they encourage greater gambles and credit expansion, which are moral hazards whereas Alan Greenspan, on the other hand, observed that derivatives have come to play an exceptionally important role in our financial system and in our economy. These instruments allow users to unbundle risks and allocate them to the investors most willing and able to use them. It is this study’s object to illuminate the complexity of derivatives and exemplify both, their advantageous and unfavourable but yet undeniably powerful characteristics.