Much ink has been spilt in discussing the extent to which risks generated by over-the-counter (OTC) derivatives were implicated in the global financial crisis (GFC). Subsequent inquiries into the causes of the crisis have focused on, amongst other things, the substantial exemption of these financial instruments from regulatory oversight and an apparent lack of awareness amongst both market actors and regulators about the extent of risk involved. Following the GFC, a narrative has now emerged in both the United States and the European Union which emphasises the significance of systemic risk, comprising the aggregate consequences arising from failure of transactions as opposed to the risk associated with particular transactions. To address systemic risk, new regimes focus both on increasing the transparency of OTC derivatives transactions and on the imposition of new regulatory requirements.
