Señor

Rock Center for Corporate Governance Stanford University
Working Paper Series No. 50

U of Texas Law
Law and Econ Research Paper No. 145

Competing for a Share of Global Derivatives Markets: Trends and Policy Choices for the United States
Preliminary and Incomplete Study

Darrell Duffie
Stanford Graduate School of Business

Henry T. C. Hu
University of Texas at Austin - School of LawPRELIMINARY AND INCOMPLETE

Competing for a Share of Global Derivatives Markets: Trends and Policy Choices for the United States♣
Darrell Duffie* and Henry T. C. Hu♦

Draft: June 3, 2008

**

This paper can be downloaded without charge from the Social Science Research Network electronic library at: http://ssrn.com/abstract=1140869

♣

Copyright © 2008 by Darrell Duffie and HenryT. C. Hu. All rights reserved.

*
♦

Dean Witter Distinguished Professor of Finance, Stanford University (duffie@stanford.edu)

Allan Shivers Chair in the Law of Banking and Finance, University of Texas Law School (hhu@law.utexas.edu)

**

This draft is substantially identical to the draft of February 19, 2008 and speaks as of that date.

1
Electronic copy available at:http://ssrn.com/abstract=1140869

PRELIMINARY AND INCOMPLETE

Competing for a Share of Global Derivatives Markets: Trends and Policy Choices for the United States♣
Darrell Duffie∗ and Henry T. C. Hu♦
June 3, 2008
**

Contents I. INTRODUCTION II. THE IMPORTANCE OF U.S.-DOMICILED DERIVATIVES MARKETS A. Overview of Benefits B. Direct Economic Benefits III. TRENDS IN THE LOCATION OF DERIVATIVES MARKETACTIVITY A. B. C. D. Exchange-Traded Derivatives Volumes Traditional OTC Derivatives Volumes Innovative OTC Derivatives The Importance of Innovative OTC Derivatives

IV. FACTORS AFFECTING U.S. COMPETITIVENESS A. Co-Location Externalities B. Regulatory and Legal Factors 1. Overview
Copyright © 2008 by Darrell Duffie and Henry T. C. Hu. We have benefited from numerous interviews with marketparticipants in the U.S. and in Europe (including interviews on a no-name basis), but have relied primarily on our analysis of publicly available data and scholarly literature. We are grateful for conversations with, or other help from, Brandon Becker, André Cappon, Alexis Collomb, Paola Galardo, Jeff Golden, the International Swaps and Derivatives Association, Guy Manuel, Stephan Mignot, KennethRaisler, and others who prefer to remain unnamed. We are especially grateful for excellent research assistance by Sandra Berg, Linda Bethel, Mark Ditto, Kate Doty, Nicole Goh, Ryan Gorsche, Cliff Gray, Katie Grey, Anthony Kaim, David McClure, Jane O’Connell, Rachael Solomon, and Scott Vdoviak. We are grateful to the Committee on Capital Markets Regulation for research funding, and look forward toreceiving comments and suggestions from the Committee and other readers. Opinions expressed in this study are solely those of the authors, and do not necessarily reflect the views of the Committee.
∗ ♦
♣

Dean Witter Distinguished Professor of Finance, Stanford University (duffie@stanford.edu) Allan Shivers Chair in the Law of Banking and Finance, University of Texas Law School (hhu@law.utexas.edu)This draft is substantially identical to the draft of February 19, 2008 and speaks as of that date.

**

2
Electronic copy available at: http://ssrn.com/abstract=1140869

PRELIMINARY AND INCOMPLETE
2. Regulatory Structure: Fragmentation and Policy Responses 3. Regulatory Approach: The FSA Model The Available Pool of Skilled Labor Accounting Standards Taxes and the Cost of Living A GlobalCurrency

C. D. E. F.

V. CONCLUSIONS AND A RECOMMENDATION Appendices APPENDIX I. ACCOUNTING STANDARDS RELATED TO DERIVATIVES A. Hedge Accounting B. Convergence Toward Global Accounting Standards C. “Fair Value” and the “Fair Value Option” APPENDIX II. AWARDS TO DERIVATIVES DEALERS APPENDIX III. THE ROLE OF HEDGE FUNDS

I. INTRODUCTION The derivatives markets have been the most dynamic of...