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13 N.Y.U. J.L. & Bus. 825 (2016-2017)
Central Clearing Counterparties for OTC-Users: A Theoretical Framework

handle is hein.journals/nyujolbu13 and id is 843 raw text is: NEW YORK UNIVERSITY JOURNAL OF LAW & BUSINESS VOLUME 13 SPRING 2017 NUMBER 3 CENTRAL CLEARING COUNTERPARTIES FOR OTG-USERS: A THEORETICAL FRAMEWORK METHODOLOGICAL LIMITS OF THE RECENT MACRO-PRUDENTIAL INITIATIVES JOSEPH TANEGA* ANDREA SAVI** Most academic analyses of the financial regulatory framework assume that clearing OTC derivatives via Central Counterparties (CCPs) represents the condicio sine qua non to mitigate the systemic risk. This Article offers a different and innovative paradigm for OTC-users. This unique model shows that (1) complexity and flexibility of OTC products leads the CCPs to adverse selection in terms of risk-pricing, and exacerbate the margin calls in volatile times; (2) a standardised regulation ossifies the financial system preventing the experimentation of new solutions and incrementing the fra- gility of the entire regulatory system against a high-impact event (so called black swan); (3) subsidizing and mutualising default losses meet the lim- its of the game theory, encouraging clearing members to additional risks and sub-optimal strategies. The authors intend to use these epistemological limits to criticise the mandate of clearing OTC transactions via central counterparties and, meanwhile, to characterize an efficient model of market clearing based on bilateral mechanisms. * Copyright @ 2017 by Joseph Tanega. Course Leader LLM Corporate Finance Law, Westminster Law School, University of Westminster, Professor of Regulation and Supervision of Retail Banking, Alma Graduate School, University of Bologna, Adjunct Professor of Law and Finance, Grenoble Ecole de Management, Professor of Law, King Abdulaziz University, Jeddah. Email: jnjtanega~gmail.com. ** Copyright @ 2017 by Andrea Savi. Structuring Legal Assistant at Com- merzbank AG (London), LLM Corporate Finance Law Graduate with Dis- tinction at University of Westminster. Email: andreasavialive.it 825 Imaged with Permission of N.Y.U. Journal of Law & Business

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