Policy Perspectives on OTC Derivatives Market Infrastructure

30 Pages Posted: 12 Jan 2010 Last revised: 9 Mar 2010

See all articles by Darrell Duffie

Darrell Duffie

Stanford University - Graduate School of Business; National Bureau of Economic Research (NBER); Canadian Derivatives Institute

Ada Li

Federal Reserve Banks - Federal Reserve Bank of New York

Theodore Lubke

affiliation not provided to SSRN

Multiple version iconThere are 2 versions of this paper

Date Written: March 2010

Abstract

In the wake of the recent financial crisis, over-the-counter (OTC) derivatives have been blamed for increasing systemic risk. Although OTC derivatives were not a central cause of the crisis, the complexity and limited transparency of the market reinforced the potential for excessive risk-taking, as regulators did not have a clear view into how OTC derivatives were being used. We discuss how the New York Fed and other regulators could improve weaknesses in the OTC derivatives market through stronger oversight and better regulatory incentives for infrastructure improvements to reduce counterparty credit risk and bolster market liquidity, efficiency, and transparency. Used responsibly with these reforms, over-the-counter derivatives can provide important risk management and liquidity benefits to the financial system.

Keywords: OTC derivatives, central counterparty, centralized data repository, collateral management, electronic trading platform, exchange, market transparency, regulation, systemic risk

JEL Classification: E61, G01, G10, G18

Suggested Citation

Duffie, James Darrell and Li, Ada and Lubke, Theodore, Policy Perspectives on OTC Derivatives Market Infrastructure (March 2010). FRB of New York Staff Report No. 424, Available at SSRN: https://ssrn.com/abstract=1534729 or http://dx.doi.org/10.2139/ssrn.1534729

James Darrell Duffie

Stanford University - Graduate School of Business ( email )

655 Knight Way
Knight Management Center
Stanford, CA 94305-7298
United States
650-723-1976 (Phone)
650-725-8916 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Canadian Derivatives Institute ( email )

3000, chemin de la Côte-Sainte-Catherine
Montréal, Québec H3T 2A7
Canada

Ada Li

Federal Reserve Banks - Federal Reserve Bank of New York ( email )

33 Liberty Street
New York, NY 10045
United States

Theodore Lubke (Contact Author)

affiliation not provided to SSRN ( email )

Do you have negative results from your research you’d like to share?

Paper statistics

Downloads
1,245
Abstract Views
5,209
Rank
22,054
PlumX Metrics