Regulation Of Otc Derivatives : Guidelines

On July 21, 2010, President Obama signed the Dodd-Frank Wall Street Reform and Consumer Protection Act, which is commonly referred as the Dodd-Frank Act. This act was passed as a response to the Great Recession in order to prevent potential financial debacle in the future. This regulation has a significant impact on American financial services industry by placing major changes on the financial regulation and agencies since the Great Depression. This paper examines the history and impact of Dodd-Frank Act on American financial services industry.

more stringent regulations. After a careful examination of the Dodd-Frank, it can be shown that

In 2008, when the financial crisis occurred, millions of Americans were left without jobs and trillions of dollars of wealth was lost wealth. To make sure the Great Recession would not happen again, President Barrack Obama put into effect the Dodd- Frank Act. With the help of this law, banks will not be able to take irresponsible risks that had negative effects on the American people. Furthermore, with the Volcker Rule embedded into the act, it will ensure that banks are no longer allowed to own, invest, or sponsor hedge funds, private equity funds, or proprietary trading operations for their own profit, unrelated to serving their

Passed under the Obama Administration in 2010, the Dodd Frank Wall Street Reform and Consumer Protection Act was designed in response to the Subprime Mortgage Crisis of 2008 which was caused in part by a gradual easing of financial regulations over the past several decades. The goal of the legislation is “to promote the financial stability of the United States by improving accountability and transparency in the financial system, to end "too big to fail", to protect the American taxpayer by ending bailouts, to protect consumers from abusive financial services practices, and for other purposes” as stated by the bill’s sponsors (FEC). The Act fundamentally changes the structure of financial regulatory procedures by creating, dismantling and consolidating certain regulatory agencies in order to streamline- and by some claims simplify- regulation of the banking industry. This piece of legislation has been the recipient of harsh criticism from both sides of the political spectrum for ideologically opposite reasons. Some critics claim that measures described in the bill cause economic stagnation as undue regulatory burdens are placed on financial institutions. Still others cite the bill’s shortfalls as evidence that it does not go far enough to prevent another economic collapse such as the one the nation faced in 2008 along with being highly bureaucratic.

Since 1933, the United States government has provided varying degrees of regulation designed to protect the average banking customer from the risks of investment banking. The Glass-Steagall Act, the Dodd-Frank Act, and the Volcker Rule were implemented to try to keep banks from investing consumer deposits into riskier securities but deregulation and lobbying have created instability.

Derivative contracts were either negotiated with specific counterparties (over-the-counter) or were standardized contracts executed and traded on an exchange. Negotiated over-the-counter derivatives were comprised of forwards, swaps, and specialized options contracts. Over the counter derivatives can be tailored to meet the customers’ needs with respect to time and quantity and they are not traded in an organized exchange. On the other hand, standardized exchange-traded derivatives consisted of futures and options contracts. Even though over-the-counter derivatives were usually not traded like securities in an exchange, they might be terminated or assigned to an alternative counterparty. Standardized derivatives trade on an exchange and have time and quantity that are fixed.

Financial Services Chairman Barney Frank and former Chairman of the Senate Banking Committee Chris Dodd created the Dodd-Frank Wall Street Reform and Consumer Protection Act comprised of “849 pages, 16 titles, and 225 new rules across 11 agencies” (Richardson 85). It is a heavily regulated complex act created to reign in risky behavior of Wall Street. Epstein and Montecino from Political Economy Research Institute state, Dodd Frank came about to “reign in risky practices, increase the capital and liquidity buffers banks had to hold, bring derivatives under-regulation…begin to bring the largest most complex financial institutions…under scrutiny and some regulatory oversight”(1). Dodd- Frank signed into federal law

The definition of "derivatives" is also very wide, and includes options and warrants, whoever they are issued by, as well as rights and interests in respect of listed securities (or other derivatives).

Drugs are a medicine or substance that has physiological effect. They can be used as a medication, or for recreational, and even spiritual and religious use. Some drugs can be a great thing, like the ones used to treat simple pains like headaches to things like deadly diseases to ease a person’s pain or even cure the disease. Drugs that can have a detrimental effect on a person’s health or welfare are considered a controlled substance. This means that these drugs are regulated by the state and federal governments. Meaning if a person caught with a controlled substance they can be fined or and even put in jail. Not all controlled substances are illegal, some are prescribed to the general public from pharmacies

What is different today? In 2015, the stock market rose 20% higher than its 2008 peak while the derivatives exposure of the top 9 banks over the same period has risen at 40%-twice that rate from $160 trillion to more than $228 trillion. Over the past couple of decades, the derivatives market has multiplied in size because it is one of the few areas the government has not heavily regulated. Everything is going to remain fine as long as the system stays in balance. But when markets become rapidly unstable, we could witness a string of financial crashes that no government on earth will be able to

The purpose of this paper is to show that the “regulatory capture” has played a role not easily measurable in causing the global financial crisis. To illustrate this, the first step will to describe the “regulatory capture” in its three possible qualifications; then, I will explain, providing some examples, how each of these categories played a possible role in posing the basis for the financial crisis. While illustrating the different forms of capture I will present some questions that leave space to different answers. Finally, I will conclude that the regulatory capture have surely played a role in generating the crisis, but it is not possible to evaluate the effective role it had in causing it.

The goal of financial regulation is to increase efficiency in the market, as well as enhance the market 's ability to absorb shock caused by financial instability. There are many reasons for financial instability, but it can be narrowed down to

Economic derivatives could be so unsafe that they could even a great cause of financial disasters. This is because many investors turn to financial derivatives market to direct them into future funding, rather than of observing at the genuine market. This can lead to market distortions and hence can be extended to other parties of the market connected in the market and thus financial position of a country can be obstructed badly. Derivative instruments were created after 1970s as a way to manage risk and create insurance downside. They were created in response to the frequent oil market shocks, inflation and drops in the stock markets. Hence the initial intend was to defend against the risk and protect against the downside. However, the derivatives became speculative tools often used to take more risk in order to maximize profits and returns. Derivatives do ensure against the risk when used properly, but when the packaged instruments became too complicated that neither the borrowers nor the rating agencies understood them or their risk and hence the initial premise just failed. Not only did investors, like pension fund, got stuck holding securities that in reality turned out to be equally as risky as holding the underlying loans, bank got stuck as well. Banks held many of these instruments on their books as a source of fixed income requirements and hence using these derivatives instruments as a collateral. However, later it was found out that they had less

The global financial marketplace is a maze, a tumor, a mess. Scholars are trying to understand this complex system which remains extremely interconnected due to globalization over time. It is extremely important to understand the marketplace because it has an effect on the whole entire world. This marketplace also needs regulations to protect consumers who end up suffering as a result of poor decision-making by financial institutions. The financial marketplace over time has become more and more regulated but still, there is more that needs to be done, both domestically and internationally. How many crises is it going to take for an increase in regulations? There has been the crisis in Thailand, on July 2, 1997, the series of Latin American

At the same time, the regulators should be as transparent as possible and fully accountable. The accountability and transparency of the regulator will increase the credibility of the regulator and in-turn benefit the regulated entity. Types of Financial Regulation Financial regulation in a country can be done either by a single body called a single regulator or multiple bodies co-existing and working together or in a hierarchy of entities known as multiple regulators. A regulator whether single or multiple does not determine the economic standing of a country or its financial strength. Many developed countries of the world follow either the system of single regulation or multiple regulations. Often in times of economic crisis or financial boom in the country’s economy the government of the nation will review its regulatory system and choose to expand or close down some of its regulatory bodies.