Dempster, Michael A.H.; Medova, Elena A.; Roberts, Julian --- "Regulating Complex Derivatives: Can the Opaque be Made Transparent?" [2011] ELECD 1046; in Alexander, Kern; Moloney, Niamh (eds), "Law Reform and Financial Markets" (Edward Elgar Publishing, 2011)

Book Title: Law Reform and Financial Markets

Editor(s): Alexander, Kern; Moloney, Niamh

Publisher: Edward Elgar Publishing

ISBN (hard cover): 9780857936622

Section: Chapter 4

Section Title: Regulating Complex Derivatives: Can the Opaque be Made Transparent?

Author(s): Dempster, Michael A.H.; Medova, Elena A.; Roberts, Julian

Number of pages: 34

Extract:

4. Regulating complex derivatives:
Can the opaque be made
transparent?
Michael A.H. Dempster, Elena A. Medova and
Julian Roberts1

INTRODUCTION

The response to the financial crisis of 2007­2009 has so far been largely
concerned with proposals for sharpening the national and international
regulatory framework, for example, by restricting institutions like hedge
funds and private equity firms and practices like short selling and credit
default swap (CDS) trading, requiring exchange trading of complex
derivatives like CDSs, or increasing the regulatory capital requirements on
financial institutions. But it may well be that the deregulation of Thatcher
and Reagan and their successors throughout the Greenspan years led to
a situation that had less to do with Schumpeterian `creative destruction'
than with the abuse of market power. In the words of Robert Khuzami,
SEC Enforcement Director, regarding the recent civil fraud suit involv-
ing a subprime mortgage bond or collateralised debt obligation (CDO)
brought against Goldman Sachs, `the product was new and complex but
the deception and conflicts (of interest) are old and simple'.
The exact role played by derivatives in the financial crisis is of
course controversial.2 However, derivative deals of many kinds have been


1 This chapter was presented at the Law Reform and Financial Markets

W.G. Hart Legal Workshop at the Institute for Advanced Legal Studies of the
University of London on 24 June 2009 and at the Münchner Kompetenz Zentrum
Ethik Seminar of the Ludwig Maximilians Universität, Munich on 9 July 2009.
We are ...