Modpartsrisiko på derivatmarkedet: EU reformen betragtet i lyset af Krisen

Louise Lorentzen

Student thesis: Master thesis

Abstract

Derivatives have, during the latest Crises, been caught in the spotlight. Derivatives in general and Credit derivatives in particular, have been considered as contributing to the instability of the financial markets. Derivatives and the risks entailed with trading these, especially gained focus in connection with the bankruptcy filing of Lehman Brothers, because the bankruptcy exemplified many of these risks. The bankruptcy furthermore illustrated the way in which counterparty risk can become a systemic risk, due to the concentration of market participants. The topic of this analysis is the counterparty risk occurring from being a counterpart to a derivatives transaction. The Over-The-Counter market has experienced a dramatic development the past 5 years, primarily because of the increase in the size of the market. The Crisis resulted in Counterparty Risk soaring, because of the volatility of the underlying markets and Lehman’s bankruptcy meant trying the arrangement of how Counterparty risk is addressed in the existing market structure. The existing regulation of derivatives and the market is quite spars, which is why a reform of the bilateral derivatives market was initiated under the framework of G20 - in July the reform was enacted in the US, and the European Commission is in the final stages of drafting its proposal. In order to determine the consequences of the upcoming EU reform, the existing market structure and arrangements for addressing counterparty risk is initially outlined, in particular with regard to characteristics affected by a change herein. Subsequently, counterparty risk is viewed in the light of the complex of problems that Lehman’s Bankruptcy left in its wake. The material effect of the expected reform is then outlined and discussed, in regard to how the markets will be affected and in relation to how the reform is enacted in the US. Finally the advantages and disadvantages of the reform are considered, and the efficiency of the existing structure versus the new, is discussed and determined, and on the basis of this, the reform is found to be an inefficient change to the existing structure. A modification improving the efficiency is therefore presented.

EducationsMSc in Commercial Law, (Graduate Programme) Final Thesis
LanguageDanish
Publication date2010
Number of pages82