The impact of post 2008 financial crisis regulations on organized exchange markets of interest rate derivatives in the United States

Abstract

The aftermath of 2008 financial crisis highlighted the necessity to properly regulate the OTC derivatives market. Both the U.S. and the European Union agreed on new regulatory measuresto (1) mandatorily trade standardized OTC derivatives through central clearing parties (CCPs), (2) increase capital and collateral requirements for non-centrally cleared derivatives and (3) report trading activities for both OTC and cleared deals. This paper examines by multivariate regression analysis the impact of the new regulation on the largest and first regulated derivatives market, the U.S., specifically in organized exchange market of interest rate derivatives, alsotaking into account the possible impact of the U.S. economy and monetary policy to this market, measured by GDP and federal funds rates respectively. Considering the difficulties imposed by the new regulations, the expected outcome would be to disincentivize bilaterally trading activities and increase the dealing through organized exchange along time. The research findings show that the outcome of organize-exchange traded interest rate Options and Futures, for both short-term and long-term maturities, is positively related to the U.S. GDP. Monetary policy showed to be not statistically significant to the market studied outcome. Most importantly, rather than the most expected outcome, the start of the regulation is shown to lower, not raise the interest rate derivatives traded in organized exchange.

Date of Award	28 Apr 2022
Original language	English
Awarding Institution	Universidade Católica Portuguesa
Supervisor	Diana Bonfim (Supervisor)