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Lessons Learned Brooksley Born & the OTC Derivatives Market (A) Case Solution
No one in the industry was in favor of the regulation of OTC derivatives because, in the Concept Release, the policies stated were only pointing towards uncertainty. If the market was regulated, it would validate certain OTC futures contracts which have previously been prohibited by law since 1982. These deep changes in the regulation would result in significant harm to public interests. If the regulations exist, it will be difficult to ask for correct information concerning industry practices to evaluate whether they are worth a governing reaction. The fact that the futures contracts on equities may be traded OTC without the approval of either CFTC or SEC is something again of concern. In consequence, the notice authorizes futures on individual stocks to be traded OTC without the administration of any regulator which may lead to fraud and moral hazards. It is absurd to proceed with the counteractive action on such exchanges on a managed commercial center while passing unique enactment to allow them in a business sector with no budgetary shields and no compelling direction. The intrinsic absence of straightforwardness in OTC markets weakens value revelation and blocks the proficient markets theory, i.e., those monetary instruments is quite often estimated accurately. Therefore, OTC subordinates and the dangers connected with them might be evaluated inaccurately.
Following questions are answered in this case study solution
Why was there no one in the industry suggesting regulation of the OTC derivatives in 1998? (Should business leaders consider public policy in making decisions? If so, what cost to their firms?
Would you, as a business leader, join an effort to repeal Dodd-Frank? Put yourself in the shoes of a leader in a systematically important financial firm. You are approached by a key staff person for a respected and influential member of Congress asking you and your firm to join with others in the industry to mount an effort to repeal Dodd-Frank. What would you do?
How can policy makers and regulators avoid being "captured" or "co-opted" by industry? (What is the right relationship between policy makers/regulators and industry? As a leader, how do you change your view of the way the world at the right time?
Case Analysis for Lessons Learned Brooksley Born & the OTC Derivatives Market (A)
The views on the utilization and role of public feeling in shaping laws can frequently be as assorted as the sentiments themselves. An outcome of overlooking popular sentiment is the ability of the people to hold their pioneers responsible for their choices long after leaving office. The Cabinet Office is looking for better approaches to include general society in strategy arrangement in both the straightforwardness and open information plans – which permit them to see precisely where each penny of the assessments is going and opens up space for political and open civil argument on territories beforehand about the state of use. If the leaders implement policies in their decisions, they have to do that at the expense of their own personal interests which the leaders may not find beneficial for their own selves. The fact that there are various opinions the leader has to address there might be a chaos in the implementation.
2. Would you, as a business leader, join an effort to repeal Dodd-Frank? Put yourself in the shoes of a leader in a systematically important financial firm. You are approached by a key staff person for a respected and influential member of Congress asking you and your firm to join with others in the industry to mount an effort to repeal Dodd-Frank. What would you do?
Dodd-Frank is an Act to advance the budgetary steadiness of the United States by enhancing responsibility and straightforwardness in the financial framework, to end "too enormous to fail". I as a leader would join hands to repeal this Act due to the following reasons: A government direction that forbids banks from leading certain venture exercises with their own records, and restrains their responsibility for association with speculative stock investments and private value stores gives budgetary controllers more discretionary force as a formula for more instability — and more lobbyists. The bill builds up another Financial Stability Oversight Council entrusted with seeing the following emergency coming. The imprudence of this is that it gives the feeling that the legislature has its eye on the ball, which breeds lethargy and incaution in the money keeping segment and gives the investors another person to fault when things turn out badly. This enactment would likewise improve the Federal Reserve's power to make expansive augmentations of credit to battling money related elements. The CFPB could essentially diminish credit access for little organizations, and along these lines imperil America's fragile financial recuperation. This Act is good for financial stability but only to a certain extent. It can give way easily to financial fraud in activities less transparent to investors.
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