Market in the Remaking: Over-the-Counter Derivatives in a New Age

MARKET IN THE REMAKING: OVER THE COUNTER DERIVATIVES IN A NEW AGE

In the aftermath of the financial crisis of 2007–08, governments in leading jurisdictions deluged the traditionally free-wheeling over-thecounter derivatives market with legislation and regulation. Political leaders, lawmakers, and regulators not only imposed oversight but also sought to rework the way OTC derivatives trade. They cited reduction in the risk of financial system collapse as justification. This Article reviews key aspects of the new rules, fundamental workings of the OTC derivatives market, and significant issues that OTC derivatives documentation specialists must face. It also shows how the new rules might sometimes fail to advance the intended systemic safety. Regardless, whatever transformation the new rules force the OTC derivatives market to undergo, they layer complexity over already complex documentation norms and increase documentation density. The new rules thus amplify documentation risk, which market participants must manage. Familiarity with the new rules, the traditional documents, and the now additionally needed documents is essential to controlling the intricacy that, more than ever, characterizes the legal structures of OTC derivatives transactions.

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