One of the focal points for reform in the aftermath of the global financial crisis was the regulation of cross-border derivatives. The crisis had exposed the deficiencies of the existing regulatory order in identifying and containing the risks created by OTC derivatives trading. The calls for reform characterized cross-border systemic risk as a problem of global dimension that necessitated global action—and, indeed, a wide array of actors and institutions, both national and international, mobilized quickly to craft a legislative and regulatory response. Given the catastrophic nature of the crisis, and the general manifestation of political will to address the problem, one might have predicted the successful development and institutionalization of shared norms regulating derivatives trading. That move, however, has been limited.
There have been many excellent studies of the regulatory reforms that followed the crisis, and my recent paper is not intended to be a comprehensive account of that process. Instead, it uses this particular regulatory episode to explore the theory and practice of transnational legal ordering. It seeks to gain insight into how transnational legal orders advance by examining the regulation of over-the-counter derivatives.
The paper begins by outlining the regulatory challenges resulting from the globalization of securities markets and describing the evolution of the international regulatory regime. It suggests that to the extent a transnational order has emerged in that area, it is characterized not by substantive norms that have settled across multiple national systems, but rather by conflicts of norms guiding the allocation of regulatory authority among national systems. The paper then turns to the actions of regulators in the aftermath of the financial crisis. It analyzes the rulemaking process in the United States and elsewhere, considering the various actors and organizations involved in that process—from national regulatory agencies to international standard-setting bodies to multinational regulatory networks. This section investigates whether the financial crisis has precipitated the implementation of shared substantive norms within multiple legal systems. It concludes that it has not, and explores certain obstacles that have impeded the development of an effective transnational legal order in this area.
Ultimately, the paper resists the characterization of transnational legal orders as evolutionary, moving from primitive stages of isolationism and unilateralism to an end state of unification. The political economy of particular markets may mean it is not possible (or indeed desirable) to work toward a top-down type of order in which regulatory norms are generated within transnational networks or supranational institutions and then diffused. In certain sectors, systems that continue to tolerate regulatory divergence, and that rely on tools such as conflicts methodology to manage that divergence, will persist.
Hannah L. Buxbaum is the John E. Schiller Chair at Indiana University Maurer School of Law.