Legal Clarity and Regulatory Discretion -- Exploring the Law and Economics of Insider Trading in Derivatives Markets
27 June 2007
By Dr. Sharon Brown-Hruska with Robert S. Zwirb of Cadwalader, Wickersham & Taft, LLC
In this article from the Capital Markets Law Journal, NERA Vice President Dr. Sharon Brown-Hruska and Robert S. Zwirb of Cadwalader, Wickersham & Taft argue that unspecified boundaries in commodities, derivatives, and securities law have increased the discretion of individual regulatory authorities, resulting in incongruous and overlapping assertions of jurisdiction by the Securities and Exchange Commission, the Commodity Futures Trading Commission, and the Federal Energy Regulatory Commission. As Congress calls for more regulation, and as lobbying groups use the experience of Amaranth to advocate for even broader regulatory reach for agencies in the OTC derivatives market, this article explores recent efforts to regulate hedge funds and their activities in derivatives markets. Urban legends associated with hedge funds and their activities in energy, debt, and credit markets provide examples that are considered within the law and economics framework of insider trading and market manipulation. Instead of attempting to design an expensive registration and regulatory program to monitor markets as diverse and fragmented as those accessed by hedge funds, the authors conclude that it is better to embrace the current regulatory and enforcement model in place that recognizes the differences between the derivatives, banking, and securities markets, and the characteristics of the instruments traded therein.
This article was published in Capital Markets Law Journal, (Oxford University Press, London) 2007, Vol. 2 (3): 245-259.
