Regulating OTC Derivatives: The Central Counterparty's Role and EMIR

The Chapter advances on an argument for the regulation of the OTC derivatives brings out the shadow banking transactions out of shadow or transforms shadow banking into resilient market-based finance. The argument is advanced on the contextual analysis of the European Market Infrastructure Regulation (EMIR) that requires the EU Member States to effect a mandatory reporting obligation to trade repository (TR) and a mandatory clearance on a list of designated OTC derivatives to be settled through a Central Counterparty (CCP). By viewing the both mandatory rules as business norms, it becomes clear that they are not just techniques to assist regulatory supervision, but also to regulate increasingly complex structured finance. The CCP not only acts as buyer and seller to each party in the same transaction by replacing each other with a novation contract, the process involves net-off mutual obligations resulting in a single net payment. By viewing payment obligation as the essential characteristic of the OTC derivatives, there is a clear shift to view the contract as a commodity.